As digital asset management firm Grayscale refuses to provide proof of reserves for its Grayscale Bitcoin Trust (GBTC), an independent analyst has spent several days scouring the blockchain to independently verify his holdings.
OXT Research analyst Ergo used online forensics to confirm that, as of Nov. 23, GBTC owns approximately 633,000 bitcoins (BTC) held by its custodian Coinbase Custody.
Coins G(BTC) in grayscale, part 2
In this analysis, we use additional online forensics to CONFIRM the estimated balance of 633,000 BTC held by G (BTC) in Coinbase Custody.
The question arises why Grayscale refuses to disclose its assets to the network? pic.twitter.com/pGMzgomFCp
— ∴Ergo∴ (@ErgoBTC) November 23, 2022
Since the FTX crash, there has been increasing pressure on other exchanges and digital asset managers to prove they own the funds they claim. The collapse of GBTC or the liquidation of its assets will be a major black swan event. Concerns have been heightened by Grayscale’s relationship with crypto lender Genesis Global Trading, as both are subsidiaries of venture capital firm Digital Currency Group.
An independent verification of its assets will give a certain level of confidence to investors in the product and the industry as a whole, and will follow Coinbase’s confirmation of assets earlier in the week.
Ergo announced it was looking into GBTC holdings in a November 20 tweet after Grayscale cited security concerns as the reason for not confirming reserves on the network on November 18.
Knowing that much of the assets had recently moved from previous security provider Grayscale Xapo to Coinbase Custody, Ergo was able to use public data and forensics on the chain to link a balance of around 317,705 BTC across 432 addresses to GBTC’s likely custodial activity.
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To find the rest of the BTC held by GBTC, Ergo had to “scan the blockchain” to find additional addresses that matched the profile of those they originally found, and notes that while the analysis “definitely includes false positives and negative values,” the addresses, which they found contain BTC assets almost identical to what GBTC claims.
Announcing that they had confirmed ownership, Ergo added:
“Which begs the question, why is Grayscale refusing to disclose its assets online?”
Twitter user Skyquake-1 offered a possible answer by unearthing a January 2017 GBTC Securities and Exchange Commission (SEC) report that states that a custodian “may not disclose such [public] keys to the Sponsor, the Trust, or any other person or entity.”
Turns out it was part of the $GBTC prospectus. They just aren’t allowed to tell you lol pic.twitter.com/WxlWjjAkmP
— Illiquidity providoooor (@skyquake_1) November 22, 2022
Ergo has received praise from many in the community, including research firm Delphi Digital Ceteris, who retweeted the analysis and added:
“So this is a treasure”
The Twitter community has been a constant source of information about the crypto industry, especially since the collapse of FTX, and has even received praise from Coinbase CEO and co-founder Brian Armstrong and Elon Musk for their efforts.