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Grayscale refuses to provide reserve proof on the grounds of "security", GBTC's discount rate reaches nearly 50%, hitting a record high

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Grayscale refuses to provide reserve proof on the grounds of "security", GBTC

Grayscale, amidst market high panic, publicly emphasized its unwillingness to disclose reserve proof for mysterious reasons, while also releasing a piece advocating transparency. This led to another decline in the discount of its GBTC, with discounts of its major trust funds continuing to expand.

Grayscale: No Public Reserve Proof

"For security reasons, we will not disclose wallet information on the chain, or provide reserve proof through cryptography, or any cryptographic accounting processes."

Grayscale Investments emphasized in the article "Safety, Security, and Transparency" that its digital assets are not affected and have enhanced risk disclosure. The summary of the article includes:

  • The balances of Grayscale's digital products have been disclosed in previous public documents and have been audited by third parties.
  • All products are custody by Coinbase.
  • According to the Coinbase custody agreement, lending or otherwise pledging digital assets is prohibited.

Coinbase also released a custody report on 11/18, but the data extraction date was 9/30.

Community Doubts, Continued Widening of Discounts

I. Meaningless Statements

FUD continues to spread. Some in the community believe that providing on-chain addresses is a simple matter, and Grayscale's decision to conceal it indicates something suspicious.

II. Questionable Third-Party Audits

Friedman LLP was the auditor for Tether from May 2017 to January 2018 and was also the auditor for Grayscale previously, which the community views as one of the opaque audit practices.

In particular, Friedman was fined $1.5 million by the U.S. Securities and Exchange Commission on 9/23 for alleged improper conduct between 2017 and 2020.

Although the November report for the Grayscale Bitcoin Trust Fund has changed the audit firm to Marcum LLP, in reality, Friedman was already acquired by Marcum on 9/1 this year.

III. Continued Expansion of Discounts

Coinglass data shows that the GBTC discount has dropped to a historical low of 45%, with discounts ranging from 10% to 60% for other trust funds.

Despite announcements by Grayscale's parent company, Digital Currency Group, to buy its own products such as GBTC and ETCG, it has not been able to reverse the discounts.

Coincidentally, BitMEX founder Arthur Hayes retweeted an article where research firm Data Finnovation discussed how Three Arrows Capital and DCG collaborated to drive up GBTC prices and profit significantly during past periods of high premiums.