“World’s best” investor and largest crypto fund under the spell of FTX

In the wake of the FTX crash, the world’s largest bitcoin fund is increasingly becoming a clan. Behind the crypto asset manager Grayscale is the powerful Digital Currency Group.

«Buy the dip», buy the rebound. despite all the market uncertainty Cathy Wood undisturbed by Krytpo. The American fund manager with ties to Switzerland, who is revered by his fans as “the world’s best investor”, is even using the sharp price drops in the crypto universe to go on a shopping spree.

Ark Invest buys big

According to the agency “Bloomberg”, star investor with his fund company ARK Invest (article against payment) bought more than 1.3 million shares in the US crypto exchange Coinbase since the beginning of November. The ARK vehicles have also increased their cryptocurrency holdings. “ARK Next Generation Internet” has more than 450,000 titles from Grayscale Bitcoin Trust since the beginning of last week (GBTC) purchased.

Grayscale is the world’s largest cryptocurrency asset manager. But with his extensive purchases at GBTC, Wood appears to be on his own at the moment. The well-known Bitcoin trust is increasingly in the investor world’s spotlight as its sister company Genesis Global Capital is the next crypto firm to be rocked by the contagion effects of the FTX bankruptcy.

Genesis falters

Although Genesis denies to the media that the company is insolvent, the market suspects that the crypto company is also close to bankruptcy finews.ch reported. Among other things, the crypto broker acts as a liquidity provider for Grayscale’s leading Bitcoin investment fund. Genesis’ lending business already ran into trouble when crypto hedge fund Three Arrows collapsed.

Wood’s investment firm Ark also acknowledged the potential impact on Genesis Trading in its latest newsletter on the FTX debacle, warning that other “counterparts” could be next. “Nevertheless, our belief in decentralized and transparent public blockchains is as strong as ever,” it continues.

Big discount to Bitcoin spot rate

Investors’ uncertainty and mistrust of crypto assets such as Grayscale’s world’s largest Bitcoin fund was reflected in a temporary record high “discount” on the exchange of up to 50 percent. GBTC is currently still trading at a significant discount of nearly 43 percent to net asset value. Since the beginning of the year, the price of the title has collapsed by almost 76 percent.

The investment vehicle has traded at a discount to the Bitcoin rate since 2021, a discount that has widened noticeably this year in the wake of market turmoil. In light of the enormous deviation, the largest institutional investment vehicle on the market is increasingly being questioned. Not least because the fund manages assets worth just under DKK 10 billion.

Possible consequences unclear

A high discount alone is not an indication that the fund will soon be liquidated. However, it illustrates investors’ uncertainty. Because it is unclear how shades of gray might be affected by a possible bankruptcy of Genesis. Therefore, the asset manager is also under pressure.

In a blog post last Friday, the company assured that all digital assets in Grayscale’s products are owned by the Coinbase Custody Trust Company. It goes on to say, “The organizational documents governing each of Grayscale’s digital investment products, as well as the custody agreement with Coinbase Custody, prohibit lending, borrowing or otherwise encumbering the digital assets underlying the products.” Financial analysts have now also backed the company in the media.

Is DCG infected?

But skepticism continues in market circles. Grayscale’s ownership structure contributes little to this. Because the reeling broker Genesis as well as Grayscale belong to the Digital Currency Group (DCG) and thus one of the most powerful companies in the crypto world, which describes itself as the epicenter of the Bitcoin and blockchain industry.

From an investor’s point of view, one must hope that the company’s slogan does not turn out to be a warning sign. Because investors are increasingly asking themselves these days how bad DCG, 2015 of Barry Silbert was founded, “infected” in the aftermath of the FTX debacle.

Under the parent company’s umbrella lies, among others, the media house Coindesk, which in early November published the report describing the stability of the FTX founder’s business empire. Sam Bankman Fried questioned – and thus the avalanche started.

DCG is also the parent company of crypto mining service provider Foundry Digital and crypto exchange Luno, to name just a few other well-known subsidiaries of venture capital firms. The crypto venture capital firm also has dozens of other holdings and crypto positions in its portfolio.

Also closely followed in Switzerland

The Grayscale case is also interesting because earlier this year the company sued the US Securities and Exchange Commission after it rejected plans to convert GBTC into a spot Bitcoin ETF. So far, the authority has only approved products based on derivatives. According to Grayscale, converting GBTC to an exchange-traded fund or Bitcoin ETF would close the trust’s discount.

This story is also closely followed in Switzerland. As recently as mid-November, the SEC also issued a ruling on whether a spot bitcoin exchange-traded fund owned by Cathie Woods Ark Invest and Swiss crypto investment product firm 21Shares could be listed and traded on Chicago’s Cboe Global Market.

The SEC has now once again extended the window to approve or reject the crypto investment instrument until January 27 next year.

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