Grayscale won’t share evidence of reserves due to ‘security concerns’
The SEC on Wednesday rejected Grayscale’s application for a spot bitcoin ETF, citing the investment manager’s failure to respond to questions about concerns about market manipulation.
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Grayscale, the asset manager that runs the world’s largest bitcoin fund, said in a statement that it will not share its proof of reserves with clients.
“Due to security concerns, we do not make such wallet information and confirmation data publicly available through a cryptographic reservation certificate or other advanced cryptographic accounting procedure,” it said in a statement Friday.
Following the implosion of FTX and its subsequent bankruptcy filing revealing that customer funds were missing, several crypto exchanges have jumped to issue proof-of-reserve audits to ease investor concerns over the safety of their funds. second, like Binancesay they soon plan to do so.
Grayscale wrote in a tweet that it recognized that failing to disclose proof of reserves would be a “disappointment to some”, but added that a “panic triggered by others is not a good enough reason to bypass complex security arrangements” which has kept its investors’ assets “safe for years.”
Grayscale’s flagship fund is the Grayscale Bitcoin Trust, known for its GBTC ticker. Although bitcoin is trading at a year low of around $16,000, GBTC is trading at a 45% discount to the price of the underlying asset.
While bitcoin is down 72% over the past 12 months, GBTC has recorded a loss of 82% over the same period, as of last Friday. The spread reflects a significant mismatch between the value of the trust’s sole ownership interest and the open market price for a share in the trust.
In its statement on Friday, Grayscale said that each of its digital asset products is set up as a “separate legal entity” and reiterated that these digital asset products are “stored in the custody of Coinbase Custody Trust Company.”
The company pointed to one letter sent by Coinbase CFO Alesia Haas on November 18, which breaks down an accounting of tokens held on Coinbase Custody. Currently, Coinbase holds about 635,235 bitcoin on behalf of Grayscale, or $10.2 billion.
In a tweetthe firm added that “the laws, regulations and documents defining Grayscale’s digital asset products prohibit the digital assets underlying the products from being loaned, borrowed or otherwise encumbered.”
Barry Silbert’s Digital Currency Group is the parent company of Grayscale, Genesis and CoinDesk. Last week, the lending arm of crypto investment bank Genesis Global Trading stopped new loan assignments and redemptions.
The bank’s lending arm serves an institutional client base and is known as Genesis Global Capital. At the end of the third quarter, it had more than $2.8 billion in total active loans, according to the company’s website.
— CNBC’s Rohan Goswami contributed to this report.