DCG begins selling stakes in Grayscale trusts

Digital Currency Group (DCG) has begun selling stakes in some of Grayscale Investments’ largest cryptocurrency funds at a steep discount, the Financial Times reports, citing the group’s disclosures.

According to the publication, the conglomerate is seeking to raise funds to shore up Genesis, the crypto-lending arm that collapsed. DCG, meanwhile, aims to preserve its most profitable investment structures, such as Grayscale.

The lending platform filed for bankruptcy in January. According to reports, Genesis’ liabilities exceed $3 billion. The amount includes more than $900 million owed to clients of the Gemini Earn product.

In light of the subsidiary’s troubles, DCG halted dividend payments and began weighing the sale of a number of non-core assets, including the industry online publication CoinDesk.

According to journalists, by January 24 the group, in several deals, liquidated roughly a quarter of its stake in the Grayscale Ethereum Trust for $22 million. The sale price was about $8 per share, while each share represents $16 worth of ETH.

“This is simply part of the portfolio’s rebalancing,” DCG commented.

The last time the group sold Ethereum Trust shares was in 2021, when they traded near the asset’s nominal value.

Grayscale charges a 2% management fee, which over the past year generated about $209 million in revenue.

The flagship Bitcoin Trust holds around 3% of the total supply of digital gold, valued at $14.7 billion. The vehicle charges investors a 2% fee. In the first nine months of 2022, it earned $303 million.

DCG also placed for sale small blocks of Grayscale fund shares based on Litecoin, Bitcoin Cash, Ethereum Classic and a basket of high-capitalization cryptocurrencies (Digital Large Cap Fund).

The group does not permit redemptions for the underlying asset, allowing liquidation at nominal value, said Ram Ahluvalia, CEO of Lumida Wealth. This applies to DCG’s own stakes as well.

The strategy has led to the fund’s quotes trading at a substantial discount to net asset value. For example, in January the discount on the Bitcoin Trust exceeded 45%. Yet this helps maximise revenue from servicing fees, said an expert.

“Closing the discount would mean abandoning this cash cow,” he added.

Earlier, Bernstein analysts suggested that in seeking financing DCG may liquidate the Grayscale Bitcoin Trust.

The group and its bankrupt subsidiaries have reached a principal agreement with major creditors on the terms of the restructuring plan.