Excellent... As a cyber security business owner, I'd like a little more detail on the security concerns, but they sound reasonable on the surface... BUT, if they hold their coins on Coinbase and NOT via a cold wallet, this really bothers me: "To be perfectly clear: these digital assets are owned by GBTC and GBTC alone."
This sounds like a lawyerly way to talk around counterparty risk. With FTX we are about to find out for sure whether someone's coins on a public exchange can be confiscated by the Bankruptcy court to pay creditors. This is exactly the possibility Coinbase warned about in a recent filing. If a public exchange enters bankruptcy and the coins "owned" by GBTC (or anyone else) can be confiscated in favor of secured creditors, then there is counterparty risk and a public exchange is no different than a legacy bank...
It's odd. I'm inclined to believe the Coinbase letter, though I find it interesting that it is marked 9/30/22. However Grayscale provides share/BTC in their letter as of November 18, 2022. If there's no issue, this still isn't a great way to communicate. We'll have to just wait and see. Feel free to cross-post this anywhere or send me a link when you're done with your piece. Have a great weekend.
I think readers need to understand that GBTC's claim is somewhat deceptive. If your coins on an exchange can be confiscated by the court to pay secured creditors, you do not really "own" them... Simply put, you have exchanged your coins for a claim against the exchange's balance sheet - just one denominated in the crypto unit rather than the Dollar. If the court confiscates it, you're SOL.
Quick note - GBTC is a trust, not an exchange. I get your point, and clearly buying GBTC shares does not give you a set of private keys, but the difference between GBTC shares in a broker account and the underlying btc held specifically by the trust is relevant. The brokerage account never actually gets a set of private keys, unlike a crypto exchange with btc.
cfrog: I have ETHE (Greyscale's Ether equivalent) in my retirement account. I used to have GBTC. I sold it when the Ethereum merge to their PoS went off without a hitch. I understand that GBTC "owns" (so they say) Bitcoin in trust on behalf of the trust's shareholders. The problem really isn't with Greyscale. I like what they are doing in the space given the nature of the status quo...
And that is where the problem lies. I am surprised to learn they "own" Bitcoin in a Coinbase account. As a technology professional, setting up the tech to have a Blockchain node - even if not to mine Bitcoin - to be able to hold your coins in cold wallet storage is not that complex. I would have thought a major trust like Greyscale would have invested in that tech... Guess not.
What this boils down to is how bankruptcy laws affect crypto. This is all really fascinating because the "straw that broke the camel's bank" of the Articles of Confederation was the Daniel Shays Rebellion. This was led by Revolutionary War vets - many who were never paid for their service - who were hounded by debt collectors. The reason the U.S. Constitution authorizes Congress to create a uniform bankruptcy code was to address that particular injustice.
I do not see how FTX customers escape this. Only the U.S. Dollar holds legal tender status under U.S. law - and that is what this will all boil down to. The FTX tokens held by FTX will likely be seen as an unsecured liability on the FTX balance sheet. This will mean the court will be able to order their sale. The problem, of course, is their will be no bid.
As for Bitcoin - it is not a token like FTX. The distinction is getting lost and is very important. If Bitcoin and Ether on the FTX exchange can be confiscated and sold for USD to settle secured claims - and in the context of legal tender laws I cannot see how this is avoided - then the whole idea of the crypto exchange will collapse as not being any different vis-a-vis counterparty risk than a legacy bank.
So what then??? Does the Fed now buy FTX to keep the system from imploding??? If the Fed going to be forced to issue a CBDC and absorb the subsequent losses onto its balance sheet?
All understood; my point is that there is a salient difference in where and how bitcoin private keys are stored when compared with normal securities. So, the shares of GBTC are very different than the control of the private keys that back them...I think you understand this. It's analogous to shares of TSMC versus the actual tooling on the factory floor.
As far as Coinbase custody service...it is not uncommon in the industry to outsource bitcoin custody. It doesn't preclude them from running their own node to validate what is being stored at what address if they wanted to. The custody service uses a combination of cold storage and multi signature private key management to keep the bitcoin secure. There's arguments on both sides as to whether or not a given firm should do this...in this case though, Coinbase has no history of malfeasance with custody and no indicators that their custody operations are in any way combined with any exchange services, nor is there any indicator that Coinbase Custody Services have done anything with custody bitcoin other than store it. I'm no fan of Brian Armstrong or Coinbase, but I prefer to be accurate in my critique.
Excellent walk though regardless. Check this out: https://www.thomaspaines.blog/p/what-if-the-crypto-crowd-becomes I am going to reprise this in light of FTX. TL;DR version: After King Charles I paid pack his forced loan (he confiscated merchants' gold to fight the Second Bishops War) the merchants fled the Royal Mint in favor of local goldsmiths. They received receipts in return for their gold. The goldsmiths then started issuing "extra" receipts (rehypothecating the gold) and lent them at interest.
Think about that for a moment... History might not repeat, but it certainly rhymes.
hey, i would recommend you talk to kurt wucker jr, he'll tell you about what the true btc is, and satoshi was also a cyber security expert, let me know if you want more info
If they truly have access to the bitcoins and can buy GBTC shares at a 50% discount, would management not buy back massive amounts of "cheap" GBTC and sell off the equivalent "expensive" BTC and greatly increase NAV to the remaining shares?
you all are so funny how everyone is scared if coins aren't held in cold storage but custody at a firm like coinbase. You all know every wall street financial firm on wall street in small print says your stocks held at there firm can be locked up, freeze withdrawals or lose all of it if firm goes insolvent. We are in a risky business so funny how all of a sudden when tough times come every one wants to blame something else. News flash It is not an American right to always have your investment portfolio go up. Suck it up all you cry babies take some responsibility weather this storm and be in position for the best buying opportunity AGAIN in markets
Custody firms typically use a combination of cold storage and multi signature access to secure btc. Cold storage itself is irrelevant of whether you have the bitcoin in cold storage or a service provider does. 2 important points - one, if a service provider has the bitcoin in a hot wallet, or does not have the bitcoin anymore but an IOU in place of it....that's a big problem (like storing gold on a pier side, or having a paper IOU in an empty gold vault in the Alps. Second point, if someone else has the bitcoin keys and you are retail, yes, they are in actual control of that bitcoin and you are in actual control of a receipt.
I just found out about Staking. This Staking seems to go completely against Bitcoin's Scarcity theme. The creator of Bitcoin wanted it to be scarce. Now we have Fiat Bitcoin.
Staking is done on Ethereum to support Proof of Stake.
For BTC, yes, you can deposit it on an exchange for yield, but you give up your keys and the host or exchange can be taking wildly risky arb bets to pay irrationally high yields. Not your keys, not your coins.
Exchanges are like public toilets, do business and leave. Go on them to buy some BTC, and pull it off into cold storage with your seed phrase backed up.
Agree with the overall sentiment. I suspect GBTC is solvent, but I find their resistance to Proof of Reserve (Proof of Trust?) unsettling, especially the argument. Public Keys do not need to be reused...additionally, I would trust that GBTC is using some type of multisig (multiple 'keys' that need to be used together to move bitcoin from an address) and has additional safeguards against threats to their trust. I would have preferred if they had addressed their security opinion regarding exposing public keys in proof of reserve and indicated they preferred to guard against potential zero day exploits, no matter how unlikely. At least in that case they would have been recognizing how 'fringe' (sorry QTR) their statement sounded. In any case, I have a feeling that we have quickly crashed into a 'everybody is lying and nobody is solvent' paranoia for the time being. There may be opportunity here, but manage exposure.
No -- you cannot hide what you own on the blockchain. It is literally impossible. Anybody that wants to can easily find out how much Grayscale has if they do enough sleuthing.
This has done nothing to garner my confidence in crypto currency. Seems like a lot of sleazy and potentially sleezy actors lurking around this medium…. Just sayin.. there is something very comforting in having american gold eagles where i can go look at them and hold them once in a while 😎
we will find out in coming days but this is a crowd mentality most are just going along with what a few are saying. Grayscale executives coming out and saying the things they have said if not true tells me they expose themselves to making false claims and severe punishment if not jail by regulators. so i see this as over blown fear that maybe well justified but an opportunity
Given the times, I found and believe this is alternative to PayPal. Application is downloadable, and it can be adapted into Substack as a custom button - link to a png/jpg (inspect element achieves this).
The instructions and links are there. They will contact you as well; or they did for me.
They are US Based. The Terms of Service to my non-legal eye are not onerous or punitive towards creators or business. They have Subscribe Star and Shopify also.
Oh nice. Looking forward to that. Kenny’s piece was great. I saved a few choice pieces of it to my notes app for easy reference. I’ve held onto my miners (some have recovered a bit, but not enough to make it worth selling) energy and SPY short all year after dumping everything else last November. Just in the past month I nibbled on a couple new ideas and am slowly building a shopping list. So Kenny’s thoughts were really helpful.
It's worth noting that the 2% management fee is based on NAV. In effect the management fee is nearer 4%
Excellent... As a cyber security business owner, I'd like a little more detail on the security concerns, but they sound reasonable on the surface... BUT, if they hold their coins on Coinbase and NOT via a cold wallet, this really bothers me: "To be perfectly clear: these digital assets are owned by GBTC and GBTC alone."
This sounds like a lawyerly way to talk around counterparty risk. With FTX we are about to find out for sure whether someone's coins on a public exchange can be confiscated by the Bankruptcy court to pay creditors. This is exactly the possibility Coinbase warned about in a recent filing. If a public exchange enters bankruptcy and the coins "owned" by GBTC (or anyone else) can be confiscated in favor of secured creditors, then there is counterparty risk and a public exchange is no different than a legacy bank...
All of this is building my case for the Digital Liberties Amendment. (https://digitallibertiesamendment.com)
QTR: Shamless plug: I am working on a post about this... Cross post? Have me on your podcast?
It's odd. I'm inclined to believe the Coinbase letter, though I find it interesting that it is marked 9/30/22. However Grayscale provides share/BTC in their letter as of November 18, 2022. If there's no issue, this still isn't a great way to communicate. We'll have to just wait and see. Feel free to cross-post this anywhere or send me a link when you're done with your piece. Have a great weekend.
I think readers need to understand that GBTC's claim is somewhat deceptive. If your coins on an exchange can be confiscated by the court to pay secured creditors, you do not really "own" them... Simply put, you have exchanged your coins for a claim against the exchange's balance sheet - just one denominated in the crypto unit rather than the Dollar. If the court confiscates it, you're SOL.
Quick note - GBTC is a trust, not an exchange. I get your point, and clearly buying GBTC shares does not give you a set of private keys, but the difference between GBTC shares in a broker account and the underlying btc held specifically by the trust is relevant. The brokerage account never actually gets a set of private keys, unlike a crypto exchange with btc.
cfrog: I have ETHE (Greyscale's Ether equivalent) in my retirement account. I used to have GBTC. I sold it when the Ethereum merge to their PoS went off without a hitch. I understand that GBTC "owns" (so they say) Bitcoin in trust on behalf of the trust's shareholders. The problem really isn't with Greyscale. I like what they are doing in the space given the nature of the status quo...
And that is where the problem lies. I am surprised to learn they "own" Bitcoin in a Coinbase account. As a technology professional, setting up the tech to have a Blockchain node - even if not to mine Bitcoin - to be able to hold your coins in cold wallet storage is not that complex. I would have thought a major trust like Greyscale would have invested in that tech... Guess not.
What this boils down to is how bankruptcy laws affect crypto. This is all really fascinating because the "straw that broke the camel's bank" of the Articles of Confederation was the Daniel Shays Rebellion. This was led by Revolutionary War vets - many who were never paid for their service - who were hounded by debt collectors. The reason the U.S. Constitution authorizes Congress to create a uniform bankruptcy code was to address that particular injustice.
I do not see how FTX customers escape this. Only the U.S. Dollar holds legal tender status under U.S. law - and that is what this will all boil down to. The FTX tokens held by FTX will likely be seen as an unsecured liability on the FTX balance sheet. This will mean the court will be able to order their sale. The problem, of course, is their will be no bid.
As for Bitcoin - it is not a token like FTX. The distinction is getting lost and is very important. If Bitcoin and Ether on the FTX exchange can be confiscated and sold for USD to settle secured claims - and in the context of legal tender laws I cannot see how this is avoided - then the whole idea of the crypto exchange will collapse as not being any different vis-a-vis counterparty risk than a legacy bank.
So what then??? Does the Fed now buy FTX to keep the system from imploding??? If the Fed going to be forced to issue a CBDC and absorb the subsequent losses onto its balance sheet?
Oh. My. God.
For more on legal tender and why we need an amendment to the U.S. Constitution, see here: https://digitallibertiesamendment.com
All understood; my point is that there is a salient difference in where and how bitcoin private keys are stored when compared with normal securities. So, the shares of GBTC are very different than the control of the private keys that back them...I think you understand this. It's analogous to shares of TSMC versus the actual tooling on the factory floor.
As far as Coinbase custody service...it is not uncommon in the industry to outsource bitcoin custody. It doesn't preclude them from running their own node to validate what is being stored at what address if they wanted to. The custody service uses a combination of cold storage and multi signature private key management to keep the bitcoin secure. There's arguments on both sides as to whether or not a given firm should do this...in this case though, Coinbase has no history of malfeasance with custody and no indicators that their custody operations are in any way combined with any exchange services, nor is there any indicator that Coinbase Custody Services have done anything with custody bitcoin other than store it. I'm no fan of Brian Armstrong or Coinbase, but I prefer to be accurate in my critique.
https://www.thomaspaines.blog/p/why-the-business-model-of-crypto
Excellent walk though regardless. Check this out: https://www.thomaspaines.blog/p/what-if-the-crypto-crowd-becomes I am going to reprise this in light of FTX. TL;DR version: After King Charles I paid pack his forced loan (he confiscated merchants' gold to fight the Second Bishops War) the merchants fled the Royal Mint in favor of local goldsmiths. They received receipts in return for their gold. The goldsmiths then started issuing "extra" receipts (rehypothecating the gold) and lent them at interest.
Think about that for a moment... History might not repeat, but it certainly rhymes.
hey, i would recommend you talk to kurt wucker jr, he'll tell you about what the true btc is, and satoshi was also a cyber security expert, let me know if you want more info
Please see: https://www.thomaspaines.blog/p/why-the-business-model-of-crypto
If they truly have access to the bitcoins and can buy GBTC shares at a 50% discount, would management not buy back massive amounts of "cheap" GBTC and sell off the equivalent "expensive" BTC and greatly increase NAV to the remaining shares?
you all are so funny how everyone is scared if coins aren't held in cold storage but custody at a firm like coinbase. You all know every wall street financial firm on wall street in small print says your stocks held at there firm can be locked up, freeze withdrawals or lose all of it if firm goes insolvent. We are in a risky business so funny how all of a sudden when tough times come every one wants to blame something else. News flash It is not an American right to always have your investment portfolio go up. Suck it up all you cry babies take some responsibility weather this storm and be in position for the best buying opportunity AGAIN in markets
Custody firms typically use a combination of cold storage and multi signature access to secure btc. Cold storage itself is irrelevant of whether you have the bitcoin in cold storage or a service provider does. 2 important points - one, if a service provider has the bitcoin in a hot wallet, or does not have the bitcoin anymore but an IOU in place of it....that's a big problem (like storing gold on a pier side, or having a paper IOU in an empty gold vault in the Alps. Second point, if someone else has the bitcoin keys and you are retail, yes, they are in actual control of that bitcoin and you are in actual control of a receipt.
I just found out about Staking. This Staking seems to go completely against Bitcoin's Scarcity theme. The creator of Bitcoin wanted it to be scarce. Now we have Fiat Bitcoin.
Staking is done on Ethereum to support Proof of Stake.
For BTC, yes, you can deposit it on an exchange for yield, but you give up your keys and the host or exchange can be taking wildly risky arb bets to pay irrationally high yields. Not your keys, not your coins.
Exchanges are like public toilets, do business and leave. Go on them to buy some BTC, and pull it off into cold storage with your seed phrase backed up.
Agree with the overall sentiment. I suspect GBTC is solvent, but I find their resistance to Proof of Reserve (Proof of Trust?) unsettling, especially the argument. Public Keys do not need to be reused...additionally, I would trust that GBTC is using some type of multisig (multiple 'keys' that need to be used together to move bitcoin from an address) and has additional safeguards against threats to their trust. I would have preferred if they had addressed their security opinion regarding exposing public keys in proof of reserve and indicated they preferred to guard against potential zero day exploits, no matter how unlikely. At least in that case they would have been recognizing how 'fringe' (sorry QTR) their statement sounded. In any case, I have a feeling that we have quickly crashed into a 'everybody is lying and nobody is solvent' paranoia for the time being. There may be opportunity here, but manage exposure.
In Crypto-land they have the whole necessary vocabulary
like "mint", "fund", "holdings", "backed by assets",
"custody", “exchange”, and "market value"
to solve this crisis with relative ease.
—
In the Harry Potter world
somebody would have come up
with the proper "abracadabra" by now.
What’s the holdup, Crypto?
—
And, yes, I know how the blockchain works.
Tether is sketch AF. I guess Chris has been saying this for a while. https://www.revolver.news/2022/11/sam-bankman-fried-ftx-on-steroids-is-cryptocurrency-tether-joe-biden-crypto-bcci/
No -- you cannot hide what you own on the blockchain. It is literally impossible. Anybody that wants to can easily find out how much Grayscale has if they do enough sleuthing.
This has done nothing to garner my confidence in crypto currency. Seems like a lot of sleazy and potentially sleezy actors lurking around this medium…. Just sayin.. there is something very comforting in having american gold eagles where i can go look at them and hold them once in a while 😎
we will find out in coming days but this is a crowd mentality most are just going along with what a few are saying. Grayscale executives coming out and saying the things they have said if not true tells me they expose themselves to making false claims and severe punishment if not jail by regulators. so i see this as over blown fear that maybe well justified but an opportunity
This is why I am short GBTC and COIN, I smell the big shit sandwich in the microwave
https://jasonpowers.substack.com/p/dropp-test-payment-app
Given the times, I found and believe this is alternative to PayPal. Application is downloadable, and it can be adapted into Substack as a custom button - link to a png/jpg (inspect element achieves this).
The instructions and links are there. They will contact you as well; or they did for me.
They are US Based. The Terms of Service to my non-legal eye are not onerous or punitive towards creators or business. They have Subscribe Star and Shopify also.
Check it out.
Need Proof of Reserves
USA had proof too in 1970!
misleading headline
2 trillion in options expired today. A huge % of them OTM puts. Put/call ratio spiked to 1.45 on Thursday. Level last seen in, oh, 2001 and 2007.
Limit down Monday incoming?
Publishing thoughts on this Monday. Already have the piece written and was going to put out today until I saw Kenny's great post. Stay tuned.
Oh nice. Looking forward to that. Kenny’s piece was great. I saved a few choice pieces of it to my notes app for easy reference. I’ve held onto my miners (some have recovered a bit, but not enough to make it worth selling) energy and SPY short all year after dumping everything else last November. Just in the past month I nibbled on a couple new ideas and am slowly building a shopping list. So Kenny’s thoughts were really helpful.