Disaster looms for Digital Currency Group thanks to regulators and whales
Regulators failed to regulate and venture capital firms invested without conducting proper due diligence.
Opinion
The cryptocurrency tide is flowing, and it increasingly looks like Digital Currency Group (DCG) has fallen slightly. But let's be clear: the current crypto contagion is not a failure of crypto as a technology or a long-term investment. DCG's problem is the failure of regulators and gatekeepers.
Since its inception in 2013, DCG's Grayscale Bitcoin Trust (GBTC), the world's largest Bitcoin (BTC) trust, has offered investors the opportunity to earn a high interest rate - over 8% - simply by buying cryptocurrency and lending or depositing it with DCG.
In many ways, the company has done a major service to the crypto industry: making crypto investing understandable and lucrative for beginners and retail investors. And during the bull run of the crypto market, all seemed to be going well, with users receiving some of the best interest payments around.
But as the market cycle changed, the problem at the other end of the investment funnel – how DCG mined user deposits – became more apparent. Although not all questions have been answered, the general idea is that DCG entities lent user deposits to third parties, such as Three Arrows Capital and FTX, and accepted unregistered cryptocurrencies. as a guarantee.
Related: My story of telling the SEC "I told you so" on FTX
The dominoes fell quickly thereafter. The third parties have disappeared. The crypto used as collateral has become illiquid. And DCG was forced to make capital calls of over $1 billion – the same value of FTX's FTT token that DCG accepted to back FTX's loan.
DCG is...
Regulators failed to regulate and venture capital firms invested without conducting proper due diligence.
Opinion
The cryptocurrency tide is flowing, and it increasingly looks like Digital Currency Group (DCG) has fallen slightly. But let's be clear: the current crypto contagion is not a failure of crypto as a technology or a long-term investment. DCG's problem is the failure of regulators and gatekeepers.
Since its inception in 2013, DCG's Grayscale Bitcoin Trust (GBTC), the world's largest Bitcoin (BTC) trust, has offered investors the opportunity to earn a high interest rate - over 8% - simply by buying cryptocurrency and lending or depositing it with DCG.
In many ways, the company has done a major service to the crypto industry: making crypto investing understandable and lucrative for beginners and retail investors. And during the bull run of the crypto market, all seemed to be going well, with users receiving some of the best interest payments around.
But as the market cycle changed, the problem at the other end of the investment funnel – how DCG mined user deposits – became more apparent. Although not all questions have been answered, the general idea is that DCG entities lent user deposits to third parties, such as Three Arrows Capital and FTX, and accepted unregistered cryptocurrencies. as a guarantee.
Related: My story of telling the SEC "I told you so" on FTX
The dominoes fell quickly thereafter. The third parties have disappeared. The crypto used as collateral has become illiquid. And DCG was forced to make capital calls of over $1 billion – the same value of FTX's FTT token that DCG accepted to back FTX's loan.
DCG is...
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