Is 2023 the first "black swan" in the industry or a false alarm?
Recently, DCG was in a debt storm. Gemini Lianchuang sent an open letter to DCG requesting to repay the debt of $900 million, which made headlines. DCG came to the forefront of the storm, first of all, its gray bitcoin trust products, Genesis, are all subsidiaries of DigitalCurrency Group (DCG). Gray issued GBTC and other information products, and Genesis was responsible for selling these products (trading, loans and hedging). In addition, Gemini (Gemini Trading Platform) It is a cryptographic trading platform (Geminiearn) that provides financial deposit products with up to 8% income. It absorbs user funds and then provides funds to partners. Genesis operates to achieve high annual interest rate returns.
In order to obtain high returns in the cryptocurrency market, DCG, the parent company, participates in GBTC, a Bitcoin trust fund issued in grayscale. Its business model is as follows: DCG subscribes to GBTC and then issues it to the market, charging a management fee of 2%. Now that this is clear, it is basically easier to understand why Luna's thunder explosion has brought a significant negative impact on the market, and then three arrows exploded, indirectly causing DCG to lose 900 million yuan.
Genesis, a subsidiary, suffered losses due to the huge investment in FTX, which is not very relevant for DCG even if it is a subsidiary's gray scale, but why is it affected? This is because DCG, as the parent company Genesis, once borrows more than one billion dollars of debt, and once Genesis is faced with bankruptcy liquidation, DCG, as the debtor, has to fulfill its obligation to pay off the debt. As an asset management company, DCG has most of its funds belong to user assets, and a large amount of its funds are still locked in gray bonds. Therefore, if DCG is faced with the liquidation of large debts, it needs to use grayscale locking funds. It is planned that the possibility of selling a large number of grayscale held crypto assets will encrypt the FUD sentiment in the financial market.
It happened that due to the form of its bonds, GBTC crypto trust products and its subsidiary Grayscale (grayscale) held a large number of crypto assets that could not be directly realized, but were unlocked in the form of ultra long period (unless special circumstances and special treatment were encountered). When the parent company may face bankruptcy, Gray will also face liquidation and realization of its assets.
2、 How will the approaching crisis be affected?
In November 2022, FTX went bankrupt, and Genesis, as one of the investment institutions of FTX, made it worse again. Therefore, the DCG problem was not built in a day, and the potential crisis was also the comprehensive impact of a series of market explosions.
But the direct trigger was that the FTX thunder caused Genesis to be short of funds and unable to withdraw cash, involving Gemini's shortage of funds and unable to withdraw cash, which led to the escalation of the matter and led to the possibility that DCG was exposed to be facing bankruptcy liquidation when it borrowed US $1.675 billion from Genesis.
Once Genesis goes bankrupt, it will continue to trigger a series of events. Then if DCG, the parent company of the borrower, uses the locked funds in the grayscale trust fund, it will need to repay its debts (if DCG cannot raise enough funds from outside), and the grayscale will be affected. Therefore, there is a serious situation. FUD is worried about the involvement of grayscale funds GBTC. When crypto bonds are sold and realized, the crypto financial market will usher in another wave of slump.
Genesis is the main partner behind Gemini borrowed product GeminiEarn, a cryptocurrency trading platform. GeminiEarn is a high-yield savings product that can provide customers with 8% annual crypto deposit return, depending on the Token they hold.
In November 2022, Genesis announced that the derivatives business was nearly 175 million dollars trapped in FTX. Therefore, the platform will suspend withdrawing money and issuing new loans. After Genesis suspended withdrawing money, Gemini also stopped withdrawing money from GeminiEarn users. So far, it has aroused users' anger and doubts, or protected their rights and interests through legal channels, and given all the pressure to Cameron Winklevoss, founder of Gemini encryption trading platform. Gemini is also desperate. Whether Genesis can match the problems faced by DCG to repay the loans owed to Gemini is uncertain.
3、 What is the worst outcome?
According to Genesis, it is speculated that the treatment plan is as follows: DCG will continue to provide assistance, bankruptcy reorganization and bankruptcy liquidation. The first two results will not directly affect the market. The worst case is to liquidate Genesis. Will Genesis sell GBTC/ETHE to pay off its debts? Genesis's GBTC/ETHE source was the collateral of Sanjian Capital at that time. When DCG provided support to him, the liquidation was completed.
The impact of FTX175 million dollars is that other trapped funds have nothing to do with GBTC/ETHE. Therefore, if Genesis is bankrupt and independent, it will not affect Greyscale. Moreover, Genesis has no ETHE/GBTC available for sale, which will not affect ETHE/GBTC. Even if ETHE/GBTC is sold, there will be a market balance, which will not affect the price of BTC/ETH.
It is reported that if DCG holds 630000 bitcoins based on the current market price of 16500 bitcoins, the total assets of DCG will be about 10.4 billion dollars, but these 630000 bitcoins are both DCG assets and its debts. Because these bitcoins were held by DCG through GBTC at that time, which were worth more than 20 billion dollars, but have now shrunk by nearly half. It looks like 630000 Bitcoins.
In fact, the loss of individual holding exceeded $10 billion. In other words, if DCG really chooses to sell Bitcoin to the market, such a sluggish inner circle market can't bear the impact of huge Bitcoin inflows, which will only lead to further market collapse.
To sum up, the bull market FUD may be harmless and elegant, but the bear market downturn is shrouded in Luna, the three arrows, and the FTX is under the fear of exploding black swans. The FUD is like a poison that erodes people's hearts and is frightening. The market seems to be waiting for a directional choice. The price of Bitcoin has been consolidated at about 16500 US dollars for eight consecutive weeks, with no upward breakthrough or downward trend. Where the market will go in the future, the direction of DCG events may become the key.