Grayscale Refrains Providing On-Chain Reserves Proof
Grayscale Investments, a provider of bitcoin investment vehicles, has rejected to give on-chain proof of reserves (evidence) or wallet addresses to show the underlying securities of its digital currency product offerings, claiming “security issues.” Grayscale Investments is a supplier of cryptocurrency-related investment products. Grayscale addressed worries over the security and safekeeping of their bitcoin assets in a Twitter discussion on November 18 devoted to the topic. The business said that the underlying cryptocurrencies for its investment vehicles are kept with Coinbase’s custodial facility, but abstained from publishing the wallet addresses.
Grayscale said, “We are cognizant that the preceding remark, especially, will disappoint some,” but “anxiety induced by someone else is not a sufficient reason to breach the extensive security systems that have held our customers’ monies safe for years.”
Grayscale has chosen to take this action in reaction to the increasing pressure on the crypto market to adopt proof of reserves (PoR) in the wake of FTX’s prolonged liquidity issues and eventual collapse. Some Twitter users disputed with Grayscale’s assertion that security worries motivated their choice to conceal wallet addresses. Even though the wallet addresses of Satoshi Nakamoto, the creator of Bitcoin, are publicly known and of higher value to hackers, “Satoshi’s Bitcoin stays secure,” according to a user.
Grayscale sent a letter inked by Alesia Haas, the Chief Financial Officer of Coinbase, and Aaron Schnarch, the Chief Executive Officer of Coinbase Custody. The letter highlighted Grayscale’s holdings as per its investment vehicles and confirmed the safety of the holdings. The letter further noted that each asset has its “native on-chain addresses” and that the cryptocurrency always pertains “to the appropriate Grayscale product.”
Grayscale stated that each of their items is constituted as a separate legal entity and that “laws, rules, and agreements […] prohibit leasing, borrowing, or otherwise encumbering the virtual currencies underlying the commodities.”
Even though Grayscale is famed for its Grayscale Bitcoin Trust (GBTC), a security that tracks the value of Bitcoin, the business now sells products that track the value of Ether and Solana. Genesis Global, the liquidity source for GBTC, reported on November 16 that transfers had been suspended due to “extraordinary market turbulence.” This “extraordinary market instability” resulted in substantial withdrawals from its site, which outpaced its solvency. This has prompted investor anxiety. Grayscale is also controlled by Digital Currency Group (DCG), the venture capital business specialized on cryptocurrencies and the holding company of Genesis.
Investors are betting on GBTC’s susceptibility to Genesis, which may be among the reasons why the company’s shares is trading at a markdown of more than 43% to its net asset value.