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What would happen if DCG really owed Genesis $1 billion?

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If DCG does owe money to Genesis, there's no way DCG could continue operating without Genesis. So how to deal with the more important grayscale?

Original source: encrypted KOL degentrading

Original compilation: Misaki, BlockBeats

BlockBeats Note: Recently, the encrypted transaction lending institution Genesis Global Capital has liquidity problems and stopped withdrawals. Its parent company, DCG (Digital Currency Group), was also affected by the incident. The market fears that Grayscale could "be considered as a strategic option in the event of disaster." Analysts believe that even in the worst-case scenario, DCG would rather retain Grayscale than Genesis' business. In this regard, encryption KOL degentrading proposed a hypothesis on Twitter, and BlockBeats organized it as follows:

If it is true that DCG owes Genesis $1 billion, something is wrong.

If the rumor is true that DCG owes Genesis $1B, here's what happens.

If DCG does owe money to Genesis, it is unlikely that DCG will continue to operate without Genesis. So how to deal with the more important grayscale?

The empire of DCG founder Barry Silbert will be directly threatened because Grayscale is a subsidiary of DCG, and if the subsidiary defaults, all subsidiary assets can be seized.

The problem is that the forfeited assets total $1 billion.

Combined with the total asset management scale (AUM) of Grayscale products , the total assets confiscated will be 10 billion. Plus a 2% management fee of about $200 million. However, because the management fee will change with the change of AUM, the 200 million management fee will have a certain risk exposure due to fluctuations in the encryption market.

At its peak, DCG was valued at $10 billion... Given Grayscale contributed about $1 billion in management expenses and Genesis contributed about $1 billion in revenue, which is equivalent to a price-to-earnings ratio of 5 times in a bull market. (In a bull market, you can make $10 billion in 5 years).

But after the FTX crash, institutional investors felt a deep panic about the crypto world. Getting people to invest in cryptocurrencies is now even career threatening. It turns out that what everyone once believed in was wrong.

So I doubt if the Grayscale business can even be calculated at 3 times earnings because the earnings Encrypted increments. For example, if Grayscale is sold at a price-earnings ratio of 3 times, DCG can only raise 600 million.

What if no buyer is willing to buy Grayscale? The only way for DCG is to disassociate from Grayscale. That's because DCG owns about 28 million shares. By selling Grayscale, they can raise about $28 million directly. But they need $200 million, which is not enough money to raise, but in the absence of a buyer, they will have to choose this path.

The problem of purchasing gray scale The reason for this is that it puts the reputation of traditional finance (TradFi) at risk. Given only 1 weekend to settle this issue and a conservative appetite for crypto risk, any offer is likely to be a sub-par.

If DCG and Grayscale are terminated, this will Unleashing selling pressure on the market at the current valuation of about $10 billion. This is due to the progressive breakdown of trust through coercive mandates. They will sell BTC and exchange it for US dollars to recover their profits. Therefore, about 600,000 US dollars of BTC will be released and circulated in the market.

Jump Crypto only sold about 50 million yesterday US dollar ETH, FTX hackers sold about 25 million US dollars of ETH, and suddenly dropped the price of ETH from 1220 US dollars to 1120 US dollars. Imagine what would happen if about 10 billion US dollars of BTC circulated in the market?

In addition, the cryptocurrency bank Silvergate Bank has a loan amount of approximately US$1.5 billion in its SEN network loan program, which will It holds about 3 billion US dollars of BTC as collateral. This also carries the risk of being liquidated.

In short, If DCG really owes Genesis 1 billion, then there is no way for it to run, and it must go bankrupt to retain the Grayscale business. Barry Silbert is also unlikely to let any " white knight "Under such market conditions, 1 billion came forward to make a rescue. If Grayscale is terminated, DCG will have $10 billion in BTC to sell.