Wild thread about the shenanigans of Barry Silbert and his various companies. This makes me wonder why Grayscale hasn't bled more once cheaper options became available.
https://twitter.com/real_vijay/status/1721385528510251182
The first few of many tweets without links and images:
1/ There was a much more important fraud than SBF's embezzlement that took place in 2022. It was a fraud (allegedly) perpetrated by one of the oldest companies in the space, @DCGco and its CEO, @BarrySilbert
Time for a thread 👇
2/ To fully understand the fraud and its repercussions we have to go back in time to 2013 when Barry Silbert started @Grayscale which offered the first fund that enabled investors to purchase #Bitcoin from their brokerage accounts.
3/ For several years GBTC was the only way for equity market capital to get #Bitcoin exposure and because it was structured as a trust (with no ETF-like redemption mechanism), GBTC traded above its NAV (net asset value) during its early history.
4/ This basically means that the value of the fund on the market was greater than its underlying assets (bitcoins). Equity investors didn't have much choice, so they were willing to pay a premium on GBTC just to get #Bitcoin exposure.
5/ Shares of GBTC were created by giving Grayscale bitcoins and then 6 months later you would receive the equivalent shares of GBTC.
Because GBTC traded at a premium to NAV (over 40% at one point), a very profitable arbitrage ("arb") trade became possible.
6/ You could perform the arbitrage trade by shorting X bitcoins while giving X bitcoins to Grayscale. 6 months later you could cover your short by selling the GBTC (that traded at a premium to the X bitcoins). Farming the premium was called the GBTC premium arbitrage trade.
7/ Several market participants recognized how profitable and ostensibly riskless (since GBTC had always traded at a premium to NAV) this trade was and began piling in. Two such participants: hedge fund Three Arrows Capital (3AC) and lending platform BlockFi (both now bankrupt)
8/ Three Arrows Capital not only farmed the GBTC premium but turbocharged the trade with leverage. It didn’t just use its own capital but borrowed massive amounts of Bitcoin to multiply their returns. But who did they borrow from?
… enter Genesis.
9/ Genesis was one of the portfolio of companies owned by DCG (DCG was a parent company created by Barry Silbert to mimic the corporate structure of Berkshire Hathaway and apply it to the crypto market). Along with Grayscale, Genesis was one of the crown jewels of DCG.
10/ Genesis was the largest, most important, and essentially only prime brokerage service in the crypto market. It had both a trading/derivatives arm (GGT) and a lending arm (GGC), but to outsiders it was just a single entity since they shared office space and even employees.
11/ Genesis sourced bitcoins from Bitcoin holders, large and small, by offering them an interest rate on their bitcoins. It lent those bitcoins out at a higher interest rate and profited on the spread. Who did Genesis lend to?
Three Arrows, BlockFi and Alameda, among others.😵
12/ At this point, it should be noted that DCG directly controlled GGT (Silbert was the chairman of its board from 2013 until July 2022) and GGC via GGT. GGC had no board until June of 2022, when a board was appointed with two out of three members coming from DCG.
13/ There was a massive incentive to encourage Genesis to make bitcoin loans that would be used for the GBTC arbitrage trade because those bitcoins would flow into Grayscale (DCG's other crown jewel) and would then be stuck there (since there was no ETF redemption mechanism)
14/ Once those bitcoins were stuck, Grayscale would collect a fat 2% per year fee for "managing the fund" (essentially doing nothing at all). Currently GBTC has over 620,000 bitcoin meaning Grayscale collects over 12,000 (TWELVE THOUSAND!) bitcoins in fees every year. 😮
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