DCG Disposes Shares in Grayscale Cryptocurrency Trusts in Effort to Raise Capital

A professional English rewrite of the sentence could be: "The digital assets conglomerate liquidates a portion of its valuable investments at a reduced price to meet its debt obligations to creditors.

DCG has initiated the divestment of its stake in various investment vehicles managed by its subsidiary, Grayscale. © FT montage/Dreamstime

The Digital Currency Group, a crypto conglomerate, has initiated the process of selling shares in some of its most valuable cryptocurrency funds at a significantly reduced price. This is part of the company's efforts to raise funds to repay the creditors of its bankrupt lending arm.

As per the US securities filings obtained by the Financial Times, SoftBank-backed DCG has begun to divest its holdings in several investment vehicles run by its subsidiary, Grayscale.

The decision to sell off assets highlights the financial challenges that the Digital Currency Group is facing as it seeks to secure funds to sustain its collapsed lending units under the crypto broker Genesis, while also protecting its most profitable business.

DCG, based in Connecticut and founded by former banker Barry Silbert in 2015, is a leading and established investor in the cryptocurrency market. The company has a strong foundation with the support of notable investors such as SoftBank, GIC (Singapore’s sovereign wealth fund), and CapitalG (Alphabet’s venture arm).

One of DCG’s most valuable assets is its asset management business, Grayscale. The company generates substantial revenue by managing large pools of cryptocurrencies such as bitcoin, ether, and others, which are offered to investors in the form of funds. Grayscale earns millions of dollars each year in management fees.

Despite a recent decline in the value of its shares over the past two years, DCG is still seeking to sell stakes in one of its largest trusts. The shares are currently trading at a significant discount to the underlying value of the cryptocurrencies held within the trust.

DCG, a US-based company, is facing financial difficulties following the collapse of its crypto broker, Genesis, into bankruptcy in January. This failure has become the latest in a string of high-profile collapses within the digital asset industry, following the downfall of Sam Bankman-Fried's FTX exchange.

The company has been working to repay its creditors, who are owed more than $3 billion, and has encountered a public dispute with Gemini exchange, owned by the Winklevoss twins, over its debts. In an effort to raise additional funds, DCG hired Lazard bankers to help sell its trade news site, CoinDesk, last month. Additionally, the company is also considering offloading some of its $500 million venture portfolio, as reported by the Financial Times.

On Monday, after months of negotiations, DCG reached a resolution with the main creditors of Genesis, including Gemini. Cameron Winklevoss, a representative of the Winklevoss twins, stated that this agreement is a critical step towards recovering a substantial amount of assets.

DCG (Digital Currency Group) has recently been selling shares in its Ethereum Fund, with the intention of raising up to $22 million. The shares are being sold for $8 each, despite each share's claim to $16 worth of ether. The recent share sales are part of DCG's ongoing portfolio rebalancing strategy, according to a statement from the company.

Grayscale, a subsidiary of DCG, has been earning a 2.5% management fee on the 3 million ether in the trust. This has resulted in a yearly income of $209 million, ending in September. DCG last sold shares in the Ethereum Trust in 2021, when the vehicle traded close to its net asset value. However, today the shares trade at half the value of the ethereum coin they represent.

The information provided by The Washington Service shows that DCG's recent share sales have been focused on the Ethereum Fund. Through these trades, the company aims to raise up to $22 million since January 24th. Despite the current value of each share, it still claims to be worth $16 worth of ether. This share sale is a part of DCG's ongoing strategy to rebalance its portfolio.

Grayscale Investments, a subsidiary of Digital Currency Group (DCG), is a prominent player in the cryptocurrency market. Its flagship product, the Bitcoin Trust, holds a significant portion of the world's Bitcoin supply, amounting to approximately 3% of the total, valued at $14.7 billion. Grayscale earns a 2% fee from this trust, resulting in a fee income of $303 million in the first nine months of 2022, as reported in securities filings.

In addition to the Bitcoin Trust, DCG has also initiated the sale of smaller blocks of shares in its Litecoin Trust, Bitcoin Cash Trust, Ethereum Classic Trust, and Digital Large Cap Fund. These moves are in line with the company's strategy to expand its portfolio and offer its clients a wider range of investment opportunities.

However, it should be noted that Grayscale does not allow investors to redeem their shares for the underlying coins held in the trusts. This practice has caused a significant net asset value gap, which could potentially pose a risk to investors. Despite this, Grayscale remains a trusted and reputable player in the cryptocurrency market, offering innovative solutions and a diverse range of investment products.

DCG (Digital Currency Group) is currently facing a challenging decision regarding their investment strategies. On one hand, they have the option of allowing redemptions and providing liquidity at par value, which would also include their own holdings. However, the company would rather not pursue this option as they are heavily reliant on the management fees they receive.

According to Ram Ahluwalia, CEO of Lumida Wealth, closing the discount would mean losing their “cash cow”, which is a significant source of income for the company. In the past, prior to the availability of reputable cryptocurrency exchanges, shares in Grayscale’s trusts traded at a premium to the value of the coins they held. This premium incentivized holders of Bitcoin and Ethereum to exchange their coins for shares in the Grayscale vehicles.