Grayscale Won't Share Proof of Reserves Due to "Security Concerns"

The SEC on Wednesday rejected Grayscale’s application for a spot bitcoin ETF, citing the investment manager’s failure to answer questions about concerns about market manipulation.

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Grayscale, the asset manager that runs the world’s largest bitcoin fund, said in a statement that it will not share its proof of reserves with its clients.

“For security reasons, we do not make this on-chain wallet information and confirmation data publicly available via cryptographic proof of reserve or other advanced cryptographic accounting procedure,” a statement said Friday.

Following FTX’s implosion and subsequent bankruptcy proceedings revealing that client funds were missing, several crypto exchanges quickly released proof of reserve audits to allay investor concerns about the security of their funds. Others, like Binancesay they plan to do so soon.

Grayscale wrote in a tweet that he realized that not disclosing proof of reserves would be a “disappointment to some”, but added that a “panic triggered by others is not reason enough to circumvent the “complex security arrangements” that have kept its investors’ assets “safe for years.”

Grayscale’s flagship fund is the Grayscale Bitcoin Trust, known by its symbol GBTC. Even though bitcoin is trading at a multi-year low of around $16,000, GBTC is trading at a 45% discount to the price of its underlying asset.

While bitcoin is down 72% in the past 12 months, GBTC posted an 82% loss in the same period last Friday. The spread reflects a significant difference between the value of the Trust’s sole interest and the open market price for a Trust Unit.

In its statement on Friday, Grayscale said that each of its digital asset products are incorporated as a “separate legal entity” and reiterated that these digital asset products are “stored in the custody of Coinbase Custody Trust Company “.

The firm pointed a letter sent by Coinbase CFO Alesia Haas on November 18, which breaks down an accounting of tokens held at Coinbase Custody. Currently, Coinbase holds approximately 635,235 bitcoins on behalf of Grayscale, or $10.2 billion.

In a tweetthe company added that “the laws, regulations, and documents that define Grayscale’s digital asset products prohibit the digital assets underlying the products from being lent, borrowed, or otherwise encumbered.”

Barry Silbert’s Digital Currency Group is the parent company of Grayscale, Genesis, and CoinDesk. Last week, the lending arm of crypto investment bank Genesis Global Trading suspended new loan issuance and repayment.

The bank’s lending arm serves institutional clients and is known as Genesis Global Capital. At the end of its third quarter, it had more than $2.8 billion in total active loans, according to the company’s website.

– CNBC’s Rohan Goswami contributed to this report.

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