Traders Smell Blood: The Prevarications by the Grayscale Bitcoin Trust (GBTC) In Revealing Its Cold Wallet Addresses Is Deepening Its Discount

Rohail Saleem

This is not investment advice. The author has no position in any of the stocks mentioned. has a disclosure and ethics policy.

The surprising collapse of the FTX exchange has unleashed a clarion call for greater transparency across the crypto world. In this volatile environment, the dithering of the Grayscale Bitcoin Trust (GBTC) in publishing its cold wallet addresses has raised the proverbial hackles of traders, who are now preparing to pounce on the passive investment vehicle’s perceived underlying weaknesses.


As a refresher, the Grayscale Bitcoin Trust is the next best thing when it comes to a spot Bitcoin ETF. The passive investment vehicle is registered with the SEC and allows investors the opportunity to gain exposure to Bitcoin without having to actually hold the world’s premier cryptocurrency. To do so, all you have to do is to buy a GBTC unit. Currently, each unit is equivalent to 0.00091502 BTC.

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Theoretically, each Grayscale Bitcoin Trust unit should trade close to the corresponding price of Bitcoin. This is not occuring. As an illustration, Bitcoin was trading at the $16,650 price level at the close of the extended trading session of US equity markets on Friday. This means that each GBTC unit should be worth around $15.24. However, GBTC units closed trading at $8.35 on Friday, constituting a discount of 45 percent! Under normal conditions, institutional investors would jump over each other to try to exploit such a huge arbitrage opportunity by lapping up GBTC units and betting on an eventual convergence with the theoretical price as dictated by the underlying Bitcoin stash. This, however, is not happening.


At the heart of this divergence lies a growing sense of foreboding as to the Grayscale Bitcoin Trust’s underlying exposure to Bitcoin. To allay such concerns, GBTC published a report, aptly titled “Safety, Security, and Transparency,” late on Friday. First, let’s go over the good parts of this report:

  • Each of Grayscale’s digital asset products is set up as a separate legal entity
  • Grayscale Bitcoin Trust does not lend, borrow, or in any way encumber its underlying Bitcoin holdings
  • GBTC’s Bitcoin holdings are under Coinbase’s custody
  • Coinbase has reaffirmed that the assets “underlying all of Grayscale’s digital asset products held at Coinbase Custody” remain “secure.”
Grayscale Bitcoin Trust Assets Held Under Coinbase Custody

Now for the bad part: Grayscale Bitcoin Trust did not share the actual wallet addresses that hold its Bitcoin stash. The company cited “security concerns” as the major hindrance in publicly revealing this information. Of course, this is utter balderdash, as wallet addresses themselves do not constitute any significant security-related issues.


The Grayscale Bitcoin Trust units are currently trading at $7.585, constituting a discount of 48 percent relative to the units' theoretical price of $14.825, which is based on Bitcoin’s current price of $16,202. The present level of discount is greater than what prevailed toward the end of last week.

As for Grayscale's potential exposure, the tweet above does a fairly robust job of illustrating how leverage is the key binding force in the crypto sphere. The main irritant here is that Grayscale's parent company, Digital Currency Group (DCG), also owns the troubled crypto lending firm Genesis Global Capital. Genesis has already revealed that its derivatives arm had about $175 million in funds that were trapped within the now-defunct FTX. This gives rise to that all-important question of contagion and whether the Grayscale Bitcoin Trust, despite its emphatic protestations to the contrary, is indeed exposed.

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