Montage of DCG logo with ethereum and bitcoin coins
DCG has started to offload its holdings in several investment vehicles run by its subsidiary Grayscale © FT montage/Dreamstime

Crypto conglomerate Digital Currency Group has begun to sell shares in several of its most prized cryptocurrency funds at a steep discount, as it seeks to raise capital to pay back creditors of its bankrupt lending arm.

SoftBank-backed DCG has started to offload its holdings in several investment vehicles run by its subsidiary Grayscale, according to US securities filings seen by the Financial Times.

The move to sell down the assets underscores the financial difficulties at DCG as it tries to raise funds to support collapsed lending units under crypto broker Genesis, while seeking to preserve its most cash-generative business.

Connecticut-based DCG, founded in 2015 by former banker Barry Silbert, is one of the largest and oldest investors in crypto coins and businesses. It is backed by investors including SoftBank, Singapore’s sovereign wealth fund GIC and Alphabet’s venture arm CapitalG.

Grayscale, DCG’s asset management business, is an important asset: it earns hundreds of millions of dollars per year in lucrative fees for managing large pools of bitcoin, ether and other cryptocurrencies in funds that investors can buy shares in from their brokerage accounts.

DCG is selling stakes in one of Grayscale’s largest trusts even though the shares over the past two years have fallen to substantial discounts to the underlying value of cryptocurrency they hold.

Line chart of GBTC discount to net asset value showing Grayscale Bitcoin Trust’s sinking value

It is seeking to raise money after the lending units of Genesis, its crypto broker, collapsed into bankruptcy in January, becoming the latest large crypto company to fail after the downfall of Sam Bankman-Fried’s FTX exchange rocked the digital asset industry.

The US group has been attempting to repay more than $3bn to its creditors and has been embroiled in a public dispute with the Winklevoss twins’s Gemini exchange over the debts. To raise further funds, the group last month hired Lazard bankers to help sell its trade news site CoinDesk. It is also seeking to offload some of its $500mn venture portfolio, the Financial Times previously reported.

On Monday, after months of negotiations, DCG reached an agreement with Genesis’ main creditors, including Gemini. “This plan is a critical step forward towards a substantial recovery of assets,” said Cameron Winklevoss.

DCG’s recent share sales have focused on Grayscale’s ethereum fund, where the group has moved to sell about a quarter of its stock to raise as much as $22mn in several trades since January 24, according to the filings. The company is selling at about $8 per share, despite each share’s claim to $16 of ether.

“This is simply part of our ongoing portfolio rebalancing,” DCG said.

Grayscale earns a 2.5 per cent management fee on the 3mn of ether in the trust, equating to $209mn in the year to end September. DCG last sold shares in the Ethereum Trust in 2021, when the vehicle traded nearly at par with its net asset value, according to the filings provided by The Washington Service. Today the shares trade at half the value of the ethereum coin they represent.

Line chart of ETHE discount to net asset value (%) showing Grayscale’s Ethereum Trust halves in value

Its flagship bitcoin trust holds about 3 per cent of all bitcoin, worth $14.7bn, from which Grayscale earns a 2 per cent fee. It earned $303mn from fees on the bitcoin trust in the first nine months of 2022, according to securities filings.

DCG has also moved to sell down smaller blocks of shares in Grayscale’s Litecoin Trust, Bitcoin Cash Trust, Ethereum Classic Trust and Digital Large Cap Fund, according to the filings.

The group does not allow investors to redeem their shares for the coins held in the trusts, which would help close the significant net asset value gaps. Grayscale is suing the US Securities and Exchange Commission over blocking the creation of a spot bitcoin ETF, arguing that this would benefit investors and allow redemptions.

“DCG faces a trade-off: they could allow redemptions and enable liquidity at par value, including for their own holdings, but they’re better off not doing it because they make so much money from the management fees,” said Ram Ahluwalia, chief executive of Lumida Wealth. “Closing the discount would mean giving up this cash cow.”

Before cryptocurrency was easily tradable through reputable exchanges, the shares in Grayscale’s trusts traded at a large premium to the value of the coins they held, incentivising holders of bitcoin and ethereum to hand over their coins for shares in the Grayscale vehicles.

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