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The craziest craziness of Grayscale Bitcoin Trust

The craziness of Grayscale Bitcoin Trust.

What is it? Supposedly a way for institutional investors to gain exposure to BTC.

Supposedly because... not really.

You thought DeFi had bad tokenomics? Grayscale will hold your beer.

🧵👇

1/ That chart you see is the BTC holding of Grayscale.

1) Notice that it grew parabolically then stopped.

2) Notice that it is steadily declining.

Chart sauce:

2/ So how do institutional guys get invested in Grayscale anyway?

Well, they basically give Grayscale money, and Grayscale buys BTC, adds it to their trust, and gives them the equivalent equity to their trust.

Sounds fine.

3/ BUT... this is the easy half of the story. Everyone is always happy to take money from you. Question is how do you get it out?

And that's where... it gets ridiculous.

4/ But first let's jump back to the parabolic rise. This is during the bull run of 2020-2021.

Here's the nugget - you can launch ANYTHING in the bull run and people will ape in.

Remember the sh*tcoins mooning? Or pictures of nothing costing a fortune? Pepperidge Farm remembers.

5/ So now let's get back to the second half of our story - getting your money out.

I.e. how do I get my BTC that you supposedly bought for me?

6/ You can't.

Yeah. Grayscale is a one-way ticket.

You give them money, and... that's pretty much the end.

7/ The only way you cash out is for you to sell your bag of equity to someone else. And that person passes it on, and this cycle repeats until the last sucker is holding onto a useless asset.

As we know in crypto, this is called bagholding.

8/ But Moo, that's only if BTC price drops. But if BTC goes up, the fund will go up too!

No.

That's the crazy part. There's no way to exchange BTC so there isn't a peg mechanism. This is why GBTC is MASSIVELY depegged right now.

Much like why soBTC is also depegged.

9/ Currently GBTC is trading -45% to BTC's actual price.

10/ Now remember this? Why on earth is Grayscale losing BTC steadily?

Because... they charge a 2% "management fee".

They are selling 2% p.a. of their BTC holdings to pay themselves a nice fat check.

AND THERE'S NOTHING INVESTORS CAN DO. Because they agreed to it.

11/ Grayscale holds 630m BTC (roughly worth 10b today). Which means they pay themselves 200m annually at current prices.

12/ tl;dr Investors gave Grayscale free money in exchange for equity holding which in theory is worthless since nobody can't redeem any of the assets. And Grayscale legally gets paid 200m/annum.

So no, they are not winding down the fund. Ever.

This post is based on this twitter thread.

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