Raising Funds: DCG Divests Shares in Grayscale Crypto Trusts
SoftBank-backed Digital Currency Group (DCG) has started to sell shares in several of its cryptocurrency funds in a move aimed at raising capital to pay back creditors of its bankrupt lending arm. The sale of assets reveals the financial difficulties faced by the company as it tries to raise funds to support its collapsed lending units under crypto broker Genesis. DCG, which was founded in 2015 by former banker Barry Silbert, is one of the largest and oldest investors in cryptocurrencies and is backed by several investors, including SoftBank, Singapore’s sovereign wealth fund GIC and Alphabet’s venture arm CapitalG.
Tapping into Grayscale Assets to Repay Debts
DCG’s asset management business, Grayscale, is a crucial asset for the firm, earning hundreds of millions of dollars every year in management fees for large pools of Bitcoin, Ethereum, and other cryptocurrencies in funds that investors can purchase shares in. The company is selling stakes in one of its largest trusts despite the shares having fallen to a substantial discount to the underlying value of the cryptocurrency they hold.
The group is seeking to raise money after the lending units of Genesis, its crypto broker, collapsed into bankruptcy in January, becoming the latest in a long list of failed crypto companies after the downfall of Sam Bankman-Fried’s FTX exchange. DCG has been trying to repay over $3 billion to its creditors and has been involved in a public dispute with the Winklevoss twins’ Gemini exchange over the debts. To raise further funds, the group last month hired Lazard bankers to help sell its trade news site CoinDesk, and it is also seeking to offload some of its $500 million venture portfolio.
Deal with Main Creditors
On Monday, after months of negotiations, DCG reached an agreement with Genesis’ main creditors, including Gemini. “This plan is a critical step forward towards a substantial recovery of assets,” said Cameron Winklevoss. The company has been focused on selling the Ethereum Fund, where it has moved to sell about a quarter of its stock to raise as much as $22 million in several trades since January 24. The company is selling at around $8 per share, despite each share claiming $16 of Ethereum.
Grayscale earns a 2.5% management fee on the 3 million Ethereum in the trust, equating to $209 million in the year ending September. The company’s flagship Bitcoin Trust holds about 3% of all Bitcoin, worth $14.7 billion, from which Grayscale earns a 2% fee. It earned $303 million in fees on the Bitcoin Trust in the first nine months of 2022.
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According to FT, DCG has begun selling its stake in its subsidiary Grayscale Trust at a discounted price to raise funds to repay Genesis creditors. Since Jan. 24, DCG has sold a quarter of its Ethereum Trust at around $8 per share, raising $22m.https://t.co/FwPhCXC6v7
— Wu Blockchain (@WuBlockchain) February 7, 2023
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Struggle to Regain Stability
DCG has also moved to sell down smaller blocks of shares in its Litecoin Trust, Bitcoin Cash Trust, Ethereum Classic Trust, and Digital Large Cap Fund. The group does not allow investors to redeem their shares for the coins held in the trusts, which would help close the significant net asset value gaps. “DCG faces a trade-off: they could allow redemptions and enable liquidity at par value, including for their own holdings, but they’re better off not doing it because they make so much money from the management fees,” said Ram Ahluwalia, CEO of Lumida Wealth. “Closing the discount would mean giving up this cash cow.”
DCG’s decision to sell its cryptocurrency fund shares is aimed at raising capital to pay back creditors following the bankruptcy of its lending units. The sale of assets reveals the financial difficulties faced by the company and its ongoing effort to repay debts and raise further funds. Despite the fall in shares, the company’s asset management business, Grayscale, remains a crucial asset, earning millions of dollars in fees every year.
