The world after FTX: who’s next to crash on the crypto market?

The cascade of bankruptcies in crypto continues. After the fall of FTX, a large number of related projects are in big trouble. Journalists are trying to guess who is next in line for FTX to go bankrupt. Bloomberg published FTX’s close affiliations, and J.P. Morgan also published its list of investors, but the biggest concern in the crypto market right now is Grayscale.

Vicious connections

To assess the extent of Sam Bankman-Fried’s influence on the cryptocurrency industry, Bloomberg published an infographic of the company’s close connections. It shows investors in yellow, investments and acquisitions in blue, and companies that have financed each other in green. 

Looking at this visualization, you can try to estimate the overall network of companies dependent on FTX (in tabular form, much of this data is available at this link):

What is Grayscale?

But among all these potentially troubled companies, Grayscale, which is a major player in the crypto world, is now the most feared in the crypto community. 

Grayscale Investments is the largest and unique digital asset management fund that attracts accredited investors from the stock market into cryptocurrency through its flagship Grayscale Bitcoin Trust (GBTC) product.

Essentially, an investor legally buys financial instruments without having to actually own cryptocurrency by delegating their custody to Grayscale. This is of interest to qualified investors who cannot move money from the stock market directly to a crypto exchange, so Grayscale here acts as a “bridge” between the traditional and digital markets.

1.🧵

No FUD, just a thread about GBTC.

Including:

– What is GBTC?
– How to arbitrage with GBTC?
– GBTC and Genesis.
– Data about GBTC.
– Will Grayscale dissolve GBTC?

— Lookonchain (@lookonchain) November 16, 2022

What is the problem with Grayscale?

At the moment there are three reasons for concern, let’s cite them in escalating levels of danger:

1. Grayscale has refused to publish the addresses of the wallets that hold their cryptocurrency, which cover the entire volume of shares. The company said on Twitter that the decision was due to the confidentiality of holding funds for the benefit of customers.
2. Of even greater concern with Grayscale was the devaluation of their shares — issued in the stock market against shares sold by institutional clients. If, according to the rules of the trusts, these securities are backed by real cryptocurrency, then why was the current discount of the securities on the market 43% of the value of Bitcoin?
3. But this abnormal share price isn’t the whole problem. Grayscale is part of the Digital Currency Group (DCG) holding company, which owns crypto broker Genesis Trading, which recently stopped withdrawing client funds. It is known that the company lost $150 million on the collapse of FTX, although prior to that, its representatives officially claimed the absence of problems in connection with the bankruptcy of FTX. 

Bear catalysts:

– Genesis declares bankruptcy
– Grayscale GBTC and ETHE forced to dissolve
– DeFi banned in the U.S
– ETH declared a security
– Infinite mint bug exploited on Bitcoin
– Satoshi wallets start selling BTC

Bull catalysts:

— sassal.eth/acc 🦇🔊 (@sassal0x) November 21, 2022

Journalists found out the fact that Genesis Trading applied for $1 billion in emergency funding. If the money is not found, what will prevent DCG from closing the hole with the cryptocurrency of its customers? The temptation to solve all their problems at the expense of clients is great, especially the fresh example in the form of FTX that everyone is aware of.

Is the next black swan #GBTC already around the corner?#GBTC holds ~648k #BTC.Grayscale discount off to a record 43% as #FTX spreads great uncertainty.Lots of hysteria in the market and everyone is looking for the 10k #Bitcoin reason.

Keep calm, bear markets end in the winter! pic.twitter.com/0FawFUFVgt

— Stockmoney Lizards (@StockmoneyL) November 20, 2022

Another list of creditors

J.P. Morgan also compiled its list of FTX clients, investors and creditors, who disclosed their connection with this cryptocurrency exchange and named the volumes of their own positions, so that counterparties and experts could assess the mutual risks.

How can I make money on this?

Grayscale’s reserves are huge — the company now has 635,235 BTC in the Bitcoin Trust and 6,390 BTC in the Digital Large Cap Fund. Assuming any problem scenario, the market would literally be flooded with cryptocurrency, causing a massive dump. This scenario is very dangerous for the entire crypto market and would probably have an even greater disruptive effect than the FTX bankruptcy.

If you are a pessimist and allow this scenario, you can try to short Bitcoin which will make you rich if your prediction is correct. However, this is not financial advice and we encourage you to evaluate all the risks of the decisions you make on your own.