Source: https://www.linkedin.com/feed/update/urn%3Ali%3Ashare%3A7018607687181504512
Gemini: How #Bitcoin Used to #Inflate #Crypto #Asset #Prices:
https://lnkd.in/gbmrcAQn :
As a standalone business, it’s inconceivable that #Genesis would have lent so much money to #3AC given the low quality of the collateral that 3AC posted. Genesis made these #loans because it was one piece of a much larger scheme designed to enrich the greater #DCG enterprise. More specifically, Genesis was willing to recklessly lend to 3AC because 3AC was using the money for the kamikaze Grayscale net asset value (#NAV) #trade – a recursive trade that ballooned the #AUM of the Grayscale Bitcoin Trust (ticker: #GBTC) and, as a consequence, the #fees earned by its sponsor, Grayscale Investments, LLC (Grayscale), a wholly owned subsidiary of DCG.
Genesis booked these interactions with 3AC as bona fide, collateralized loans. In reality, 3AC was acting as a mere #conduit for Genesis, allowing it to enter into what were effectively #swap #transactions of #bitcoin for GBTC #shares with the Grayscale Trust. In this transaction, Genesis was betting that shares would be worth more than bitcoin in the #future. The 3AC “#loan” was the #bitcoin leg of the #swap and the 3AC “#collateral” was the GBTC leg of the swap. 3AC was a mule shuttling the assets between the parties, and as a result Genesis ended up owning massive risk.
Up until 2021, Genesis won this #zerosum trade because the GBTC #shares were worth more than bitcoin. Starting in 2021, however, Genesis lost this trade because the shares were worth less than bitcoin. Normally, all things being equal, the #gains and #losses would cancel each other out. There is no free lunch. In other words, Genesis would participate in both the wins and losses. Astonishingly, however, it appears that Genesis never participated in the wins because it apparently always ceded them – the GBTC share premium – to 3AC. This meant that Genesis only participated in the losses, turning what would otherwise have been a zero-sum trade into a negative-sum trade.
…Things only begin to make sense when you realize that the #bitcoin this #swap was stuffing into the Grayscale Trust like a Thanksgiving turkey is stuck there forever. It can never be redeemed (or at least until Grayscale, in its sole discretion, decides to implement a #redemption program allowing GBTC shares to be converted back into bitcoin)…
Original #Accounting #Fraud.
Instead of booking these #swaps as the #risky #derivatives that they were, Genesis hid them by mischaracterizing the first and last legs of these swaps transactions as collateralized loans on its balance sheet. This made the Genesis #balancesheet appear healthier than it actually was, fraudulently inducing lenders to continue making loans…
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