DCG closes its subsidiary’s headquarters, fueling Bitcoin market fears

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Digital Currency Group (DCG), the crypto conglomerate that owns lender Genesis Trading and asset manager Grayscale, among others, announced today that it has closed its asset management division called HQ Digital, fueling new fears within the bitcoin and crypto industry, given that the company managed $3.5 billion in total assets as of December.

A memo obtained by The Information states that HQ Digital is being shut down due to “the general economic environment and the ongoing crypto winter, which is creating significant headwinds for the industry,” and that the company could revisit the project in the future. It is a subsidiary of DCG which was created last year.

The company’s partners were reportedly blindsided by the decision. Remarkably, the news comes on the same day that DCG announced massive layoffs at Genesis Trading amounting to 30% of its employees.

It should also be noted that the shutdown took place as early as January 2, according to the report. Towards the end of last year, many altcoins held in large quantities by Barry Silbert’s company saw a massive sell-off and price drops.

This caused greater turmoil and rumors that DCG CEO Barry Silbert might sell his assets in the market. Thus, today’s news may explain the crash of Ethereum Classic, Filecoin, ZEN and NEAR in mid-December.

DCG Bankruptcy Fears Rise in Bitcoin Market

For now, the news is likely to cause further panic in the crypto community, fueling fears that DCG and Grayscale could go bankrupt. However, this decision must be seen in the context of a corporate restructuring of DCG that Barry Silbert launched at the end of last year.

Meanwhile, the pressure on Barry Silvert continues to mount. Gemini founder Cameron Winklevoss released an open letter earlier this week accusing Silbert of stalling and giving him a Jan. 8 deadline to return the $900 million in Gemini Earn client funds.

Additionally, Valkyrie Investments recently offered DCG to become the new sponsor and manager of Grayscale Bitcoin Trust (GBTC), while also announcing the launch of an opportunistic fund to take advantage of Grayscale Bitcoin Trust rebates. The $3.5 billion asset manager Fir Tree, meanwhile, has filed a lawsuit against DCG.

Apparently, DCG is facing a liquidity crunch which came to light after FTX collapsed, forcing Genesis to suspend repayments and new loans. Tommy Shaughnessy, co-founder and co-director of Delphi Ventures, broke down the DCG situation as follows:

– DCG owes $2.025 billion – Genesis can repay its $1.675 billion loan – Genesis owes Gemini $900 million

GCD Liquid

– Grayscale $10 billion AUM x 2% = $200 million x 3x multiple = $600 million – GBTC / ETHE Holdings = 9.7% / 3.8% = $629 million with discount, 1, $17 billion at par – VC book = Firesale values ​​in a bear

Possible solutions for DCG

As Shaughnessy explained, Grayscale could likely raise $600-800 million at a 3-4x multiple if sold. However, future fee generation is under pressure as there are lawsuits for Reg M Relief to shut down the discount.

DCG’s grayscale holdings could net the company $1.17 billion. On the one hand, DCG can sell its Grayscale Bitcoin Trust (GBTC) and ETHE on the open market, currently worth $629 million. However, DCG is facing “an insane slippage, so let’s call it a 25% haircut or $471 million,” Shaughnessy said, explaining further; “Untie trusts, markets the nuke. Get $1.2 billion at par, probably $900 million with a 25% nuking discount.

However, the latter of the two alternatives would make selling Grayscale impossible, so according to the co-founder of Delphi Ventures, there are two main options:

1/ Sell Grayscale and sell GBTC/ETHE holdings = $600M + $471M = $1.071B

2/ Roll out Grayscale (can’t sell if you roll out) and get the assets back at par or $900 million.

Neither option is enough to bring in the $2.05 billion needed. So where will the rest come from? According to Shaughnessy, this could be from Silbert’s Book of Risks or DCG:

Maybe Barry, but I probably wouldn’t stop here given the risk. Maybe DCG’s adventure book, but doubt it with bargain prices in a bear.

There is a big shortfall. I think it will be very complicated and long. Gemini could bridge the gap between what they get from Genesis (from DCG) with their equity or personal holdings.

At press time, Bitcoin price stood at $16,783, still showing historically low volatility.

Bitcoin price (BTC/USD), 1-day chart

Featured image from CNBC, chart from TradingView.com

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