Arthur Hayes: How can DCG use GBTC to build encryption supremacy?

原文标题：《White Man 》

Original article by Arthur Hayes

Lynn, MarsBit

This post was previously written by Arthur HayesHayes: How the White Boy SBF Bewitched the American Caste System Winner"Follows DCG founder Silbert and his crypto hunting game, as well as the trading relationship between Three Arrow Capital, DCG, Grayscale and Genesis.

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Last week, I described how Sam Bankman-Fried became the "right white guy," and how he used that role to convince Western financial institutions and the cryptocurrency industry to ignore his shortcomings and not ask too many questions. Here's what he told us in his own words. Described what he did:

I have to. In a way, that's what reputation is made of. I feel sorry for people who get messed up by it because of this stupid game that we sober Westerners play where we say all the right dogmas, so everyone likes us."

Among the consequences of SBF's apparent epic fraud that we're starting to see this week, perhaps the most significant casualty is the possible insolvency and possible bankruptcy of cryptocurrency lender Genesis, which could be huge, Enough to bring down its parent company, Digital Currency Group (DCG), a prominent venture capital firm. The Genesis/DCG drama -- which also included Genesis's sister company, digital asset fund Grayscale -- was particularly powerful, Because it directly affects GBTC, the largest bitcoin investment product listed on any exchange. The reason GBTC is so important to us cryptocurrency traders is that it holds one of the largest reserves of bitcoin. If investors - whether they want to or not - are allowed to redeem GBTC shares in BTC or dollars, it could set off the next brutal downward course in the legal price of bitcoin and other shit coins.

Now that SBF's image of invincibility has been shattered, investors have recovered their ability to do the math and read public statements. They have started asking everyone questions and giving no one the benefit of the doubt because some aspect of the social condition allows their rational brain to silence their intuitive or lizard brain.

The whole point of these articles is to change your thinking about the future. When the next person comes along who speaks the "right" words, wears the "right" clothes, goes to the "right" schools, talks/looks the "right", hangs out with the "right" people, and is promoted by the "right" media organizations, I hope you ignore all of that and focus on the math and the self-evident truths of public statements.

In this post, I'll delve into the business of digital currency management and break down the Genesis/DCG/Grayscale soap opera...... G, G, G-Unit! As the article concludes, I'll lay out a scoring scale for evaluating potential means of profiting from the carnage.

But first, in a similar way to how I began the first part of this series, let's revisit the "Rule of America" and do a little racial theory. Barry Silbert, the man at the top of this crumbling DCG/Genesis/GBTC empire, is just a foil, and I'm trying to make a broader point in this series about how stereotypes hinder investors' ability to properly manage risk. All the information presented in this article has been public for years - but no one bothered to ask because Barry Silbert fits the type you trust in the peacetime business world of America (i.e., a confident white guy who says all the right things).

To be clear, I'm not suggesting that his whiteness was somehow the driver of the actual events that took place at Genesis/DCG/Grayscale (GBTC). I would argue that because he was white, he seemed trustworthy and, as a result, investors blindly followed him without delving into how all the parts of his empire fit together. It's not an indictment of being white at all - it's an indictment of the system, and its willingness to overlook someone's flaws just because they seem to have a certain way and say the "right" things. I didn't know the man - we weren't even acquaintances - and I had no financial stake in his kingdom. That's it, let's jump in and first look at how the broken system works and how some people gain the trust of their peers without causing more problems.

Pepe Village needs a money manager

Unless you want to store your wealth in physical cash or gold and conduct all transactions face to face, it is not possible to self-keep your assets in a simulated TradFi system. You simply entrust your assets to banks and money managers. These intermediaries allow money and assets to move from point A to point B.

And as we know, there's a lot of trust involved. You trust the bank not to make bad loans that hurt its ability to repay your deposits. You trust the people or organizations that manage your money not to steal it or funnel it into dubious investments.

Given the need to trust your financial intermediary, how do you choose which person or organisation to manage your money? Let's do a silly little thinking exercise.

Imagine a village called Pepe Village. The residents of Pepe Village are green frogman creatures. Pepe village is quite isolated. They don't have many regular human visitors, but they are connected to our civilization through their meme trade with us. Selling these memes to humans could bring in a lot of money for the village of Pepe, which they want to invest in their future.

Although the village does not often visit humans, it watches a lot of television. The show is from the Rule of America, so Pepe Village is very familiar with the culture of the Rule of America.

One day, eight salespeople visited Pepe Village. Each man's goal is to persuade the village of Pepe to let them manage its wealth.

There were two salespeople, a man and a woman, who were referred to as "white" by the Rule of America.

There were two salespeople, a man and a woman, who were referred to as "Negroes" by the Rule of America.

There were two salespeople, a man and a woman, who were referred to as "Asians" by the Rule of America.

There are also two salespeople, a man and a woman, who are referred to as "Hispanic" by the Rule of America.

Were it not for the amount of television the villagers watch, these titles would be unfamiliar to them. The villagers had watched enough television to know what these terms meant under the Rule of America.

Pepe Village Presbyterian Church held a meeting to receive each salesperson and hear their presentation.

Every wave of people says exactly the same thing.

"Hello, this is who I am."

"I work for a company."

"You should trust me, because I learned finance here, here and there."

Finally (and most importantly) :

"I charge a 2% management fee, and my track record is this and that."

After the eighth person spoke, the Pepe village chief opened the meeting so that the council could decide who to entrust the village savings to.

"Ah, I'm confused," says Mayor Pepe. "Except for gender, every salesperson has the same name, went to the same university, studied the same things, wears the same clothes and performs the same in the market. They even charge the same price."

"Wait a minute - these people are of different races", interjected Wojak, one of the other MPS. "That's what they call it on TV. Every race is introduced differently on TV -- so if we do what the TV says, we're sure to pick the most trustworthy person."

"That's a good offer, Wojak," replied the Pepe mayor. "I know you watch the most TV in the village. Can you tell us which race is the most trustworthy on TV?"

"I do watch a lot of TV," Wojak said. The women are housekeepers or nannies. Their bosses are often white. None of these things, in my opinion, says much about Hispanics' knowledge of managing money."

I always see them playing characters who are good students of those subjects. I also see them running many small businesses in areas of the city where large white businesses don't want to go, such as the black inner cities. While the TV says they are smart and hard-working, I don't see them managing other people's money to a large extent. They are also sometimes shown to be docile and not very social."

They were always fighting in the rundown parts of town. Whenever I saw a show featuring black people, there was a lot of violence. But sometimes I saw them dribbling or throwing and catching the ball, and white people seemed to enjoy watching them play sports.

It doesn't really matter -- the white characters are always in positions of power and everyone seems to look up to them. I think they must know the most about money management and be the most trustworthy."

Mr Pepe seems satisfied with Mr Wojak's analysis. "Ok, now we know. We should choose white salespeople who are male or female. Wojak, does the TV say that men are more trustworthy or women are more trustworthy?"

"We should definitely trust men more than women when it comes to finance," Wojak responded. "I watch these financial entertainment channels, and they're always beautiful women interviewing powerful men, and they seem to run all the major financial businesses."

Mayor Pepe nodded and added, "Does anyone on the council object to the choice of a white male salesman to manage our assets?"

No one questioned the mayor of Pepe.

Asset management ABC

With this little thought experiment over, let me jump off my soap box and get into the nitty-gritty of the DCG/Genesis/GBTC (G-Unit) situation.

Because it is not possible to self-keep your wealth in the TradFi system, you must entrust it to an asset manager. This means that everyone in the industry can be terrible at their job and still make money. Because it is so much easier to do a bad job than a good one, asset managers must build moats around their businesses to protect their ability to continue to be mediocre.

Starting an asset management business is very difficult and expensive. There are a lot of rules you have to follow, and to make sure you meet them, you have to hire a variety of specialists who each focus on a particular area - which can get very expensive.

The only way to win the game is to manage a large pool of assets. That's because the biggest differentiating factor for those looking to hire an asset manager is often the management fee - and fund managers with larger assets under management have more flexibility in setting fees (as a simple observer, you'd think track record and past performance would be the biggest differentiating factor - but the reality is, It is so difficult to outperform the market over long periods of time that asset managers' track records are often so similar that they are hard to tell apart).

The cost of running a business does not increase dramatically as the assets you manage grow. Running a $1m fund with assets under management is not much more expensive than running a $1tn fund.

That means the bigger their assets are under management, the more managers can cut prices and still make hefty profit margins. The result is a natural oligopoly in the market. Because costs are relatively fixed regardless of asset management size, large funds can easily drive small managers out of business by lowering fees below what they can afford.

So for new entrants to successfully break into asset management, they need to offer products that competitors won't touch. Keep in mind that just a few short years ago, cryptocurrencies were out of reach for companies like Blackrock and Fidelity, even with high demand for bitcoin tracker products.

At the time, there were many people who wanted to enjoy the financial rewards of Bitcoin but didn't want to actually use the technology. It's too much hassle to set up a wallet, securely store their private keys, and find a trusted exchange to buy bitcoins from. Like most other commodities or currencies, these investors want a platform traded product that they can simply buy with fiat money in their brokerage accounts. They are willing to pay exorbitant management fees for the privilege.

Who should future bitcoin investors trust to manage their bitcoin risk? Well, there is a white man, and his name is Barry Silbert. I like to call him fondly. Mr. Shillbert, because he was a shameless salesman for himself and his financial products. He knows ABC:

Always

Be

Closing

We believe in Bitcoin

Despite many efforts by many different groups to get approval from the SEC, it eventually became clear that exchange-traded funds, or ETFs, where managers take investors' cash or bitcoin and use it to create units of the ETF, It then trades on the stock exchange in New York, the capital of Datong - an impossibility for American investors.

Recognising that the lack of ETFs created huge pent-up demand from less tech-savvy investors who wanted to get in on the BTC action, Mr Shillbert found a way to create the next best thing.

He has developed a trust - the Grayscale Bitcoin Trust (or GBTC) - where investors can create shares by providing dollars or BTCS. After six to 12 months, investors can convert their shares in the trust into securities traded on pink sheets. Oh, I forgot to mention - this product is a bit like Hotel California. Once you check in, you can't check out. It was (and is) not possible to redeem your GBTC shares. Once you are invested, the only way out is to sell GBTC at whatever price is in the market. If there's no buyer, you're on the hook.

Although it is not on the main board of the New York Stock Exchange, GBTC can be purchased by any broker with the ability to trade U.S. stocks. With the birth of GBTC, many investors who want to benefit from Satoshi's vision but don't really believe in its teachings can now get in on the action.

Perhaps the most important thing about GBTC is that it has a very high management fee of 2.00%. To illustrate this point, SPDR S& P 500 ETF - one of the most traded financial instruments in the world - charges 0.0945%. Mr. Shillbert is able to charge such a high fee because setting up this type of trust is a very complex, expensive and time-consuming process, and no Bitcoin ETF products have been approved, And no traditional asset manager wanted to touch Bitcoin in the first place -- meaning no big company could squeeze it out by offering lower fees. In short, people have been willing to pay because there isn't any competition, and they're desperate for exposure while bitcoin's price is rising.

So GBTC is a money-printing machine, the crown jewel of Mr. Shillbert's cryptocurrency empire. Grayscale's fees financed everything Mr Shillbert did in the industry. Mr. Shillbert has structured the entire business around GBTC's AUM growth. Once the money is in, it cannot leave, and the time is ripe to pay Mr Shillbert management fees.

period

I'd like to thank DataFinnovation for this post, which illustrates the little game Mr. Shillbert is most likely playing with DCG, Grayscale, and Genesis.

According to them, Mr. Shillbert's little game of Smoke and mirrors goes like this.

target: Grow GBTC's asset management and extract a 2% management fee from the stranded capital.

Let's break down what this chart shows.

Step 1 -- Get capital into Genesis

Genesis and Gemini entered into a partnership in which Gemini lent Genesis its clients' funds for a fee. This is called the Gemini Earn product. As a Gemini user, you can mortgage your BTC or dollars and receive interest from Gemini. Gemini took those funds and lent Genesis at a higher interest rate than it paid its users through Earn. Now, Genesis has a lot of money to lend. Remember -- Genesis is in the cryptocurrency lending business.

I don't know if this is the only way Genesis is going to fund its loan book. The lender's job is to borrow cheaply and lend at higher rates, based on its perceived strength in terms of balance sheet/risk management acuity. I have to assume that Genesis was able to borrow from other companies at attractive rates because it was, until recently, the best managed and largest centralized cryptocurrency lender.

Step 2 -- Create GBTC with borrowed money

Genesis would lend bitcoins to companies like the now defunct Three Arrows Capital (3AC) and BlockFi, which would then turn around and give their borrowed bitcoins to Grayscale to create a stake in GBTC (we know, 3AC is the largest company to do this kind of deal because they own so many shares that they have to file with the SEC).

A screenshot of the historical quarterly record of GBTC's largest holder

3AC and others were involved in the deal because the GBTC shares they created traded at a premium on the open market. GBTC trades at a premium because it takes six months to create shares - meaning that even as demand for GBTC increased during the recent bull market, the only shares available to buy were those created six months ago. This leads to a situation where there is more demand to buy GBTC than there are willing sellers. So buyers are prepared to pay more than the value of the underlying bitcoin asset to get what little GBTC they have and get the risk without having to go through the process of buying bitcoin itself.

Basically, the process looks like this:

3AC borrows BTC from Genesis.3AC gives BTC to Grayscal and creates GBTC shares for itself. Six months later, 3AC received GBTC shares and hoped to sell them at a premium in the market.

Step 3 -- Lend dollars against GBTC collateral

Remember, Genesis is borrowing dollars from Gemini and its Gemini Earn product. It pays for those dollars, so it needs to find someone to lend it dollars so it can make a profit. Genesis turned to a company like 3AC and said, "Hey, thank you for creating all these GBTC shares with my sister company Grayscale! Since they won't be profitable for you for another six months, how about you give them to us as collateral in exchange for a dollar loan?" 3AC agreed, and was happy to have immediate access to dollar liquidity for profits it could not expect in six months. We know that 3AC borrowed $2 billion using this circular method, which resulted in a lot of expense for Genesis. Mr. Shillbert is not being sold for free.

And that $2 billion is how Su Zhu and Kylie Davies, the people at the heart of 3AC, realized their big pimp fantasy. Unfortunately for them, like most empty dreams, they woke up from the big dream and went broke before they could deliver the yacht.

Step 4 -- Markets, please don't go down

Unfortunately, this entire circular sweepstakes is predicated on GBTC continuing to trade at a premium. As the premium turned into a discount in 2021, companies like 3AC and BlockFi were unable to pay the dollar loans they had taken out from Genesis. Since they had given GBTC to Genesis as collateral for a dollar loan, when the value of GBTC declined, there was a risk that they would need to provide additional collateral to cover the loss of value of GBTC.

To put it in plain English: When you take out this type of loan, you give the lender a certain amount of assets in return, so that if you can't pay back the loan, they can at least take back the assets you pledged - that is, your collateral - and recover some of the losses. If the value of the asset you pledged declines, you need to provide more assets in order to maintain the agreed value of your collateral. Why? Well, if lenders just allow the value of borrowers' collateral to continue to decline without asking them to provide more, it could get to zero, which would negate the whole point of holding the collateral in the first place - it's insurance against losing the entire amount of money you lent.

Being required to put up more capital in this way is also known as being subject to margin calls. If the borrowing entity facing margin calls cannot post more collateral, it will default on the loan.

With the value of other assets they own exploding at the same time - see TerraLuna - 3AC, BlockFi and others are in danger of not having the necessary capital to cover margin calls.

DCG is the owner of Grayscale and Genesis, and they don't want margin calls on the 3Acs and BlockFIs of the world (because then they can't get back the money they lent to these companies). To avoid this, DCG sought to prevent the price of GBTC from falling further by raising capital and using cash on its balance sheet to apply buying pressure and buy GBTC on the open market. Not surprisingly, they failed.

As you can see from the screenshot of GBTC holdings above, DCG is now the largest holder of GBTC. The DataFinnovation article lays out a timeline of how DCG will step in as a buyer of last resort.

One question that has always bothered me is how DCG financed the purchase of GBTC. Mr Shillbert is an experienced financier. In finance, you always, always, always use other people's money. Now, we know that DCG borrowed money from Genesis. While it has not been confirmed what DCG used the above funds for, it is possible that DCG borrowed the money from Genesis in order to purchase GBTC. That would explain why DCG needed to borrow money from Genesis, while Grayscale threw in hundreds of millions of dollars worth of management fees.

Backed by Genesis's strong reputation as the best cryptocurrency lending shop, DCG was able to borrow cheaply. As an investment company, if DCG had gone to the market to raise this money on its own, it would have been asked more questions about why it needed to borrow, and would have ended up paying higher interest rates on a smaller scale.

Bad debt

In order to funnel as much money as possible to GBTC, Mr. Shillbert and his collaborators effectively destroyed Genesis and DCG. That's because 3AC, BlockFi and many others who put money into these trades have defaulted. They defaulted because:

GBTC went from a premium to a discount. GBTC is the collateral behind all these loans, and when GBTC loses value, the loans go bad.

Terra's collapse affected so many Genesis borrowers that any other collateral provided for their BTC and dollar loans also went into the dustbin. Keep in mind that bitcoin, Ether, and the whole shit-coin herd fell between 50% and 90% in the weeks following the collapse of the Terra ecosystem.

And the coup's bounty is a stunning deception perfectly executed by the sanctified-white boy SBF. Alameda also borrowed from Genesis and I can't imagine they didn't trade GBTC at a premium.

pause

These are Genesis problems, not DCG or Grayscale problems. How did this credit contagion move to Stage IV credit cancer and threaten the life of the entire G-Unit? Mr Shillbert offers some clues in a recent update.

Keep in mind, folks, that Mr. Shillbert is a good financier and accountant. Here's my guess at what these intercompany loans look like.

In a credit crunch, bad loans are recognized as bad only after the lender stops lending. The Genesis balance sheet has been poorly insured against 3AC loans. Even after 3AC's bankruptcy, however, there is still a chance of recovery. But no one knows what the percentage will be - so the percentage is what someone is willing to trade for. For example, if DCG is willing to buy a 3AC loan at face value, and DCG assumes that over a ten-year time horizon, 3AC will be able to repay the loan in full due to an increase in the price of the cryptocurrency. So Genesis was able to sell 3AC's debt assets to DCG for 100 cents (instead of saying 0 or 10 or 20 cents).

Mr Shillbert tells us that DCG took on 3AC loans from Genesis's loan book - so the only question is, what did DCG pay for them? In a purely accounting sense, if DCG paid its face value, Genesis would be solvent. That's fine...... Is that right? But how does DCG pay for this asset? Mr. Shillbert informed us that the money Genesis lent to DCG was used to purchase assets on Genesis' balance sheet, which I believe is the most favorable valuation for Genesis (i.e., face value). It's kind of like a left-handed Fugazi deal. Bad debts are simply being laundered from one member of G-Unit to another. But if you want to maintain Genesis's image as a reliable lender, then executing this accounting sleight of hand will do the trick.

Surely, then, the Genesis would charge market rates to members of its G-Unit family? Again, we don't actually know because Mr. Shillbert didn't tell us the exact rate or say it was a "fair deal." But Mr. Shillbert has a T-Rex weapon, so I wouldn't take too much comfort from that statement.

Contrary to what we believed a few months ago, DCG did not pour any new hard currency into the Genesis. The radioactive 3AC loan was simply removed from view and unnoticed just before the FTX/Alameda explosion. Genesis is at risk there, too.

Other DCG liabilities include:

$575 million borrowed from Genesis to make an "investment" and buy back DCG shares. $375 million credit facility.

3.  DCG is certainly loading up a lot of debt -- about $2 billion in total. Now, when your crown jewel GBTC throws out $400 million a year in management fees, it's not a big deal because before the summer crypto crisis, when BTC was at $30,000, it was on schedule. But now, with a run rate of $200 million at $16,000 BTC, DCG's Jenga game is a bit wobbly.

Now, Lil Wayn tells us what to do:

https://www.youtube.com/watch?v=WpQrAbkM3dI

They wobble, wobble, wobble.

Shake it, shake it, shake it.

Put down the hot potato

Clearly, further declines in bitcoin, ether and shitcoin collateral - combined with the possibility of a Jupiter-sized hole in the Genesis balance sheet after the FTX/Alameda explosion - are impossible for Mr. Shillbert to escape from his financial engineering. Had it been any other way, Mr. Shillbert would have played the same trick, getting DCG to buy Genesis's bad debt by borrowing from Genesis.

That's just my guess -- but I suspect whoever is lending money to Genesis may have turned off the spigot. Without access to external dry powder, G-Unit's movie end credits began to roll.

Finally, cold math and excessive leverage force society's conditional puppets to buck up and become discerning investors again. There are too many questions about what's really going on inside G-Unit. But I do know one thing, from everything I've read about it, in my head, DCG and Genesis should not be touched. Clearly, my views were shared, or Genesis would not be teetering on the brink of bankruptcy.

As a result of all this, DCG has some tough choices to make. Will Mr. Shillbert allow the new money to be taken from his GBTC management fee revenue stream? Will Mr. Shillbert dump more GBTC on the market to raise cash to plug the G-Unit's capital hole? So far, Mr Shillbert has been using other people's money cleverly. Will he dig deep into his own pocket to save his empire?

All roads lead to GBTC and the Grayscale Trust. Grayscale is the only good asset inside G-Unit that can throw off a lot of cash. Will the GBTC discount expand as DCG is forced to sell GBTC? Could something happen at Grayscale that would dissolve the trust and enable GBTC holders to take advantage of the 40% discount?

Now that we know about this particular white man's plot, can we make some money? The next section of this article discusses how to trade this dislocation in the market from a technical perspective.

transaction

GBTC is in the state of discount. There are two deals that we have to evaluate.

Transaction 1 (Bitcoin/dollar price neutral) :

Sell dollars and buy GBTC. Hedge your bitcoin/dollar exposure by establishing a short bitcoin/dollar permanent swap or short bitcoin/dollar futures position. Wait until the discount becomes a premium or GBTC can redeem at par. If GBTC moves to premium, sell GBTC and buy USD. Then close the derivative short positions. Redeem GBTC if GBTC can be exchanged for BTC or US dollars. If you receive BTC, sell it for dollars. Then close the derivative short positions.

Trade 2 (long Bitcoin/dollar) :

Sell dollars, buy GBTC. Wait until the discount becomes premium or GBTC can be redeemed at par. If GBTC moves to premium, sell GBTC and buy USD. If GBTC can be converted into BTC or USD, GBTC will be redeemed. If you receive BTC, sell it for dollars.

Financing/hedging costs

The cost of the derivative is the November 23, 2022 BitMEX June 30, 2023 Bitcoin/USD futures contract, XBTM23  On an annualized basis.

Whenever we evaluate carry trades, we must consider the financing and opportunity costs of capital.

GBTC must be adequately funded. Your broker won't give you leverage. So you need to borrow dollars, or use dollar capital that you directly own. In either case, there is a cost. Let's assume that you would buy GBTC with the dollars you own outright. Given that I can buy two-year US Treasuries (PA) at about 5 per cent a year, this is my cost of capital (or opportunity cost).

Next, we have to consider how much it would cost to hedge our bitcoin/dollar risk if we made this price (or delta) neutral trade. Trading in permanent swaps and futures contracts is now in retreat. That means the futures price is lower than the spot price. Thus, as a holder of a short contract, we pay for the privilege of profiting when the bitcoin/dollar price falls.

Unfortunately, futures contracts with maturities longer than six months are not very liquid. That means the cost of financing derivatives cannot be known in advance. If the GBTC discount takes a long time to become a premium, or if GBTC is redeemed at par, then we are subject to the rolling price of the futures contract.

If we are conservative and assume that it will take two years to achieve an acceptable exit, the table above sets out the cost of the deal. Revenue is 40% off GBTC on the market (as of 11/23/2022), or what your execution level is. At current levels, the deal represents a 25 per cent gain (40 per cent of the proceeds from buying at a discount and eventually selling at face value and 15 per cent of financing and hedging costs).

The premium or discount of GBTC is positively correlated with the rate of change of Bitcoin price. GBTC will trade at a premium if bitcoin prices accelerate rapidly upward. GBTC will trade at a discount if the price of bitcoin accelerates rapidly to the downside. It's important to understand that the nominal price of bitcoin is irrelevant. GBTC Bitcoin at $16,000 is trading at a discount today as bitcoin comes down from a high of $69,000. In 2020, when bitcoin was coming off lows of $3,000 to $4,000, GBTC was trading at a premium at $10,000. This is a path-dependent variable.

Bitcoin/USD (yellow) to GBTC Premium/discount (white)

So if you believe the price of bitcoin has reached a bottom, it only takes a change in the direction of the price for GBTC to turn into a premium. So for those who believe we are at the bottom, this is a great way to add a trade that is biased towards the longer term. That's because you get the added thrill of a GBTC discount. Financing costs still apply. Let's say you believe sentiment will change over the next 6 months, bitcoin will quickly rebound from $16,000 to $30,000, and GBTC will swing from a 40% discount to a slight premium.

In fact, the doubling of bitcoin is not extra revenue. That's because you can simply buy physical bitcoins without participating in the strategy. So the incremental additional income from a directional bullish bet on bitcoin is 36.5%.

"Cryptohayes, are you doing these trades?"

You ask me? My answer is, not at this time. There is also an unquantifiable opportunity cost of capital risk, evident in both cases - locking up scarce dollar capital in transactions of uncertain timing. I don't know when bitcoin's price action will reverse or when, if ever, I will be able to redeem my GBTC shares at par.

I'm happy to sit on a US Treasury with my unused fiat money. That is because the Treasury market is the most liquid in the world. If there is a serious bad cryptocurrency asset that gets spat out of one of these bankruptcies, I want to be prepared with dry powder. GBTC trading will now be liquid as volatility in its prices and discounts increases on the way down. As cryptocurrency winter sets in and volatility plummets along with volume, crypto assets and derivatives of all types will become illiquid, and GBTC will not be an exception. In short, it's a big door in and a small door out. As an experienced emerging market equity trader, I know to steer clear of these trading Settings.

As always, this is my opinion, not financial advice -- do your fucking research.

How to redeem

The inability to quit GBTC's cockroach hotel is both a blessing and a curse for the cryptocurrency capital markets. This is a good thing, because if there was an easy way to redeem GBTCS at these heavily discounted levels, it would mean that there would be plenty of physical BTCS for sale. Holders of GBTCS either redeem their shares for the premium and then dump the BTCS they received, or the trust sells the BTCS on their behalf, giving investors dollars in exchange for their GBTCS. Either way is bad news for a bear market.

Since GBTC is virtually impossible to redeem, this capital is ripe harvest for Mr Shillbert's fee-collecting machine. I stress-tested this assumption by studying GBTC's prospectus in detail. Here's what I found out about the channels through which GBTC can be redeemed:

Redemption path: 1:75 percent or more of the shareholders voted to dissolve the Trust

This is a very high hurdle that can force a shutdown. I therefore think it highly unlikely that a different number of shareholders will be persuaded to vote to redeem the trust. Given that not all shares are publicly traded in trusts, even if you wanted to buy up all the publicly traded GBTCS and vote for dissolution, you still wouldn't be able to accumulate enough to meet the 75% threshold.

If DCG is not on board, given that they hold about 10% of the outstanding shares, then you need 83.33% of the remaining shareholders to vote yes. That makes winning that much harder.

Redemption Route 2: The promoter elects to dissolve the Trust Fund

As of November 23, 2022, the trust's assets were valued at approximately $10.2 billion. That means Grayscale -- and, by extension, Mr. Shillbert -- pocketed $204 million a year in management fees. The amount of work required to obtain these payments is close to zero. So why the fuck would you voluntarily decide to dissolve the trust? Obviously, you won't.

Redemption Route 3: SEC granted exemption from Regulation M

The exemption essentially allows GBTC holders to redeem at the fund's net asset value. Grayscale is currently suing the SEC to get this exemption for the trust. Their argument is simple, because the SEC does not allow GBTC to convert to ETFs, the SEC should grant an exemption. I can't take an inventory of the chances of this lawsuit winning, but either way, we won't know much more about what the court has in mind until the first quarter of 2023. It is therefore impossible to know how likely this approach is to succeed and, if so, how long it will take.

But let's assume a 50 percent chance of success within the next year. This means that there is a 50% chance that you paid all of your financing and management fees for a year and will be able to redeem them - and conversely, there is a 50% chance that you will pay all of your financing and management fees for a year and not be able to redeem them.

All that work and risk for 12.45 percent. It's far from a slam-dunk deal, but it might be worth a shot. That said, I still won't do this trade because my scarce fiat capital will be locked up for a year, unable to participate in other unknown bad cryptocurrency opportunities.

mature

Our cucumber-munching gigolo is just a little boy, because his deception is so blatant. As a parasite, you don't want to kill the host. It's better if the host is alive and you bleed them slowly.

The white man had been a boy, but he had learned the value of patience. GBTC's management fee plan is much better than the blatant theft of $10 billion of customers' money. Far better to earn daily bread from willing participants. Mr. Shillbert never forced anyone to invest in GBTC. Every owner of this product did so willingly. While they may howl about why delaying the redemption process is against the best interests of GBTC investors, at the end of the day, everyone who owns this product bought it knowing they couldn't get away with it.

Also, if they want out, they can turn to a public market where there are buyers, albeit at a low price, who are also willing to buy GBTC if they want to sell.

If you find this story a bit short, weird and interesting, boycott the TradFi parasitic financial markets that allow it. If you want cryptocurrencies, go to your favorite exchange platform and buy bitcoin or other cryptocurrencies and immediately withdraw them to your own hardware wallet such as Ledger. Stop buying fugazi financial products like GBTC. Stop using smooth operators like Mr Shillbert. Satoshi gave everyone the tools to become their own financial institution. If you refuse to bask in the light of the Lord, then please don't cry the other way around when you have to dine with the devil.

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