Cryptocurrency markets on tenterhooks as Digital Currency Group hangs in the balance
The hits keep coming for cryptocurrency giant Digital Currency Group (DCG), owner of Grayscale Investments, the Genesis lending platform and CoinDesk, as well as stakeholder in hundreds of crypto-related companies across the globe.
Amid a US$900mln legal spat with Winklevoss Twin-owned crypto broker Gemini and a struggle to retain control over its US$13.5bn Grayscale Bitcoin Trust (GBTC), DCG head Barry Silbert has made the executive decision to halt dividend payments to the firm’s shareholders.
“In response to the current market environment, DCG has been focused on strengthening our balance sheet by reducing operating expenses and preserving liquidity. As such, we have made the decision to suspend DCG’s quarterly dividend distribution until further notice,” DCG told shareholders on Tuesday.
Although Silbert has moved to allay concerns over DCG’s financial position, it is hard to put a positive spin on current developments in the company.
Not only has its subsidiary Genesis, at one point the largest crypto lender in the business, had to halt customer withdrawals in order to fend off a bank run, as well as cut 30% of its staff, but it now faces a lawsuit from the Securities and Exchange Commission (SEC) alleging securities law violations.
GBTC shares, meanwhile, remain at a near 40% discount to the trusts’ underlying bitcoin holdings, and its manager Michael Sonnenshein is now facing calls to step down from DCG’s controlling shareholder Osprey Funds.
With a severe liquidity crunch coming from all directions, bankruptcy rumours have inevitably emerged for DCG, although Silbert has yet to utter the B word in shareholder correspondence.
Perhaps surprisingly, the cryptocurrency markets have shrugged off DCG’s dividend renege, despite the implications for the market in the event of the firm’s implosion being huge.
DCG has over US$13bn in bitcoin tied up in GBTC alone, while its investment portfolio comprises nearly 300 companies.
The collapse of Three Arrows Capital in May 2022 showed what can happen when a major cryptocurrency firm goes under, while FTX’s collapse drove the point home.
With the future of DCG in the balance, there could be volatile times ahead for bitcoin and the crypto markets as a whole.