In order to demonstrate the underlying assets of its digital currency products, Grayscale Investments, a supplier of cryptocurrency investment products, has declined to disclose on-chain proof of reserves or wallet addresses, citing “security concerns.”
On November 18, Grayscale responded to investor concerns on Twitter with information about the security and safekeeping of their bitcoin assets. It stated that all the cryptocurrency used to back its investment products is kept in Coinbase’s custody service without providing the wallet addresses.
The aforementioned statement, in particular, might disappoint some, but panic created by others is not a good enough reason to overcome advanced security mechanisms.
Grayscale’s decision comes as the heat grows on cryptocurrency companies to implement proof of reserves in the wake of FTX’s liquidity problems and ensuing bankruptcy.
Some Twitter users criticized Grayscale’s assertion that its decision to withhold its wallet addresses was motivated by security concerns. One user commented that even if Satoshi Nakamoto’s addresses are generally known and have a higher value to attackers, “Satoshi’s Bitcoin remains secure.”
Data on hand indicates that GBTC is currently selling at a discount of 45.08% to its net asset value. Because DCG, the largest holding, is presently dealing with concerns about financial difficulty, this is a record low.
Market analyst Joe Consorti called attention to the fact that GBTC’s public filings were unaudited. He said the SEC fined Friedman LLP, the firm’s accounting firm, for failing to disclose “inaccurate financial statements.”
Famous cryptocurrency critic Peter Schiff added that the record-low NAV suggests something else. He stated that it is likely that GBTC lent its Bitcoin to a borrower who is unable to pay it back.
Consorti observed that DCG had been obliged to purchase back GBTC’s shares as a result of dumping by holders like 3AC and BlockFi. Even while it hasn’t lessened the GBTC discount, this now suggests that DCG is experiencing a liquidity crisis.