How Does DCG rectify a 900m hole? Is the Final Shoe Is Yet to Drop? With Guest Andrew (@AP_Abacus)

[00:00:03] We've been very lazy lately, I think we missed two weeks in a row but here we are. And also appears that my I had some technical difficulties over here and I'll see you guys are seeing that or not but it will be fine on the back end.

[00:00:43] And for those of you that are watching, you can see there's a fourth window here which is a pretty exciting for us. We have a guest and we welcome to the program. Hey, thanks guys. Thanks for having me. Happy to be here.

[00:00:56] It's interesting and exciting times in the Crypto Space right now. Isn't it? Yeah, and you have been like very much a must follow recently, at least in my eyes because you've been breaking some news on some things that I think people want to hear about.

[00:01:14] So it's going to be fun to talk about this and see where we go but in or you've been kind of at the forefront of what's been breaking with DCG, digital currency group, at least on Twitter.

[00:01:28] I've seen you kind of, I don't know if it's predicting or knowing and I'm like holy smokes is to do it on top of it. So really excited to talk to you about all that because I'm looking to hear from you but

[00:01:40] it sounds like this thing isn't done yet and there's some issues to drop still and that's going to be pretty fun to talk about. But before we do that, would you mind setting yourself up a little bit for the audience in the center? Yeah.

[00:01:50] Then in crypto late 2014, early 2015, I sold a rat-fi company back in 2014 and kind of went looking for what do I want to do next? And crypto grabbed my attention. I found myself a fairly low key at the time out in San Francisco cryptocurrency hedge fund event.

[00:02:15] In about 15 minutes of being there, I realized this is the next thing. For one reason and one reason alone in that room were some of the smartest people I've ever met in engineering in sort of what I would consider technology and finance.

[00:02:37] And I thought to myself, these are three disciplines that rarely come together at the same time and they're all here for a reason. And so I said, this is, I'm going to go down this road. Started a company at that point.

[00:02:50] That company had middleing success, shut it down in I think 2018 ended up with a partner who had been an Asic minor, a Bitcoin minor since 2013. At one point was running more than 3,200 machines in the southeast.

[00:03:12] Yeah, really smart guy from an energy standpoint and finding spots where energy was really, really cheap and cost effective. And he and I have been working on a company that goes by the name of Arch public for two years now.

[00:03:29] We are very, very focused on utility in the blockchain. We build on the liquid network and a Bitcoin network. Our focus has been things like access, trading algorithms associated with traditional markets and insurance, insurance associated with blockchain digital assets and assets that

[00:03:58] are kind of off the radar in terms of traditional banks. So doing some things in Europe right now that we're very, very excited. Nice. So wow, you're eight plus years in. Yeah, it's not like, this is your thing. Anyway, I'm going ahead. Yeah, so thanks for the background.

[00:04:18] That's super helpful to kind of get to know you better. I'm curious how that all led to the intimate knowledge that you have for the last several weeks now sort of around Genesis and DCG before we go into the timeline and what kick

[00:04:33] things off, stress established some credibility there. Where are you typically finding your information? What ties you so closely to the organizations? It's honestly been a version of right time right place. So from 50,000 feet being in the space for the time that I have, there's a conglomerate

[00:05:01] of folks that have been in that space for that amount of time. So you get to know people, right? You get to know people who know people who know people and certain elements of the industry

[00:05:13] begin to shake loose or bubble up, end up having conversations with people that find yourself in the right place, right time. So what it comes to DCG and Genesis, I know several creditors of Genesis that put a

[00:05:30] sizeable amount of capital with them and by extension we've now to know with DCG. And so I was getting calls and getting texts probably a month before some of the news began to break. And frankly, they've been feeding me information on top of that.

[00:05:56] They've introduced me to other folks. I've now ended up having lots of conversations with venture capital firms that have an interest in the situation in terms of distressed assets. I've had long-form conversations with people that have built portfolio companies inside

[00:06:15] the DCG ecosystem that are also creditors of Genesis. So it's going to take it on a life of its own, right? And so that's kind of the architecture where you know kind of the information that end up speeding out on Twitter is coming from.

[00:06:37] No, that's super helpful to know. Do you find when you're speaking with them, it sounds like mostly it's from the credit group rather than like internal Genesis. What do you think the motivation of the creditors to kind of to speak with you generally is?

[00:06:52] Are they, they want to get this message out but they don't want it necessarily associated with them? Yes, what do you think drives? The answer to that is yes. There's a good, there's a sizeable portion of these creditors that are high net worth individuals.

[00:07:10] And whatever anybody knows about a group like that, they generally aren't the loudest folks in the room. They said it's pretty quiet because they found their careers and financial lives, it's better to do things behind closed doors than to do things in public.

[00:07:33] Now that doesn't mean that at some point if the stress gets too much, if the confusion or frustration gets to a point where they feel compelled to file some sort of legal action when it'll then it becomes public.

[00:07:54] So that's the answer to that question is they'd rather have some sort of resolution that keeps everybody from a point relative to clean. Okay, but we'll see. And just for the disclosure aspects, are you a creditor of DCG?

[00:08:14] Do you work with DCG or Genesis or simply just a bystander receiving information? So no, no, no, not a creditor of Genesis. I don't have any business relationship with DCG. I respect what DCG and Genesis do.

[00:08:32] They huge, huge players in the industry, huge commitment to crypto overall, believers in what crypto has as it relates to the future of quote unquote finance and what it brings to all different parts of global population. So you have to respect what's been built there.

[00:08:59] The truth of the matter is, is 2015, 1617, even 18, the biggest venture capital player in crypto, you could make a case that it was digital currency group. I mean, they own part of or on the whole, 150 plus companies.

[00:09:22] You could a couple years ago, you could take a look at their portfolio and be like, whoa, they own a piece of everything. So that's, this is not going to be a long-form dissertation on DCG's bad, Genesis's bad. These guys are bad.

[00:09:44] For a long time, they were seen as the North Star of the kind of folks you want to work with in the space. So that doesn't mean that a set of decisions can set somebody back.

[00:10:02] But yeah, they don't have a lot of good in the space so far. It feels like every crypto hero at some point has a villain arc, whether intentional or not. They rise and they fall and so I would be nervous for anyone that feels like they're coming

[00:10:23] into that next hero arc because inevitably it seems to be leading to their downfall. But so DCG and Genesis have a lot of corporate partnerships, right? So like I think we're all aware of that.

[00:10:36] The aspect that I think will be most interesting to the listeners is probably the relation to Gemini because that's where most, I think, average people are impacted by this in one way or another.

[00:10:48] So that started off, I believe, on November 16th is when Genesis, which was a landing partner of the Irm program on Gemini, Pauze withdrawals and message that they wouldn't be able to meet user reductions, which was shortly after FTX.

[00:11:03] So from the best of your understanding, what led to that day? What steps or decisions or events by DCG or Genesis? I think Genesis led to the 16th, which was hey, we got to stop these withdrawals.

[00:11:18] I think the FTX shock that was all that happened so fast, right? It the beginning of it started with the at the time called main characters. You never want to be the main character in crypto, right? Like you can't ever want to be that guy.

[00:11:43] The main characters, you know, slap by each other on Twitter, right? CZ and at the time Sam. And what came out of that is an incredible and enormous liquidity crunch and a vaporizing of liquidity. And so when FTX went under the perceived liquidity in the crypto ecosystem vanished,

[00:12:15] faster than anything I've ever seen literally. So that liquidity vanishing and then the confidence associated with the access to liquidity also vanished. So what happened was in my mind is smart people at Gemini, right?

[00:12:36] Nobody on this podcast would think that the Wink of Us twins are dumb people that are not dumb guys, right? Smart guys who also have meaningful relationships from illegal standpoint, a regulatory standpoint, right? They don't make a we're shutting down withdrawals because you know, out of whim, right?

[00:12:56] There's real thought, there's real legal discussions, there's regulatory considerations, all of those things. And I think it came down to a realization that what DCG and Genesis thought were issues that could have been solved with liquidity.

[00:13:19] Very quickly became issues that where liquidity didn't exist anymore and they're now left with massive holes on their balance sheets. So DCG and Genesis realized this very quickly and then I would assume, I don't have

[00:13:37] direct knowledge of this but I would assume that their first phone call to a quote-unquote partner was the Gemini because you know, functionally the number with Gemini earned associated with Genesis is 900 million pounds.

[00:13:53] So in a real world standpoint, Genesis biggest number that they have to deal with is Gemini that's not considered an inter company correlated liability, right? All of the other liabilities associated with Genesis, you know, our inter company type of

[00:14:22] issues which a lot of legal stuff to figure out there and I'm not a lawyer and I've never even played one on TV. And I didn't sleep at a holiday in Express last night so I mean I have no legal reports

[00:14:40] here so but you can imagine that they're, you know, their first, you know, outreach was to was to Gemini. So to me that sounds like the path that that took and so, you know, 34 or five days later here we are.

[00:14:59] Can we double click on one thing you said there because you talked about Gemini being the largest non inter company loan and I think I know what you're talking about but I want to double click on that so that everyone else does as well.

[00:15:13] I believe what you're referring to is the largest inter company loan. If I remember right in correct me where I'm wrong was a basically debt transfer from Genesis to DCG. So Genesis was in the whole maybe within our middle loan.

[00:15:31] You told me more on that and I believe DCG said hey we'll take that on for you. Where am I right? Where am I wrong? I think it was a 3AC loan to be 3AC clear. It was huge.

[00:15:44] It was anywhere between one and a half to 2.1 billion dollars at the time. So DCG decided to swallow that more importantly, there was another outstanding Genesis 2 DCG loan to the tune of $1.1 billion. So, you know, you're looking at liabilities again to a parent company that's more than $3 billion.

[00:16:13] So while the Gemini liability with Genesis is enormous $100 million, it pales in comparison to Genesis O's. Genesis, sorry what DCG word oh Genesis. So there's a, you know, it's the meme of the 3 Spider-Man, right, the 3 Spider-Man are pointing at each other.

[00:16:40] I'll pointing at each other and then like okay DCG goes this to Genesis but you know Genesis O's this to Gemini and then but if Genesis has issues, then DCG has issues. So DCG needs to work with Genesis with you know there's no, maybe everyone's problem.

[00:16:56] It, it, what I've come to understand and this is again 50,000 feet. There aren't any good answers here. You know if Genesis were to file for bankruptcy, those loans of sizeable portion of that $3 billion in loans are callable.

[00:17:18] Right, so if Genesis again, which is a portfolio company of DCG right, if Genesis declares chapter 11 bankruptcy then by law they, you know bankruptcy lawyers and bankruptcy court would force DCG to cough up a billion plus dollars.

[00:17:38] Right, and as far as I can tell DCG don't have that money. As far as I can tell the liquidity to go and get that money, everybody have this podcast with assume and no doesn't exist right now in crypto or

[00:17:54] there is not the traditional finance appetite to toss a billion bucks into crypto like that. That's gone too. So, um, and let, you feel a memory of this because you alluded to something when you were kind of giving your

[00:18:09] intro to all this and I was like, oh, I want to jump on that but we were kind of talking about it. You said even a month before this stuff went down you started to kind of hear about it a little bit.

[00:18:19] Was that because of like the residuals of the 3A seal owner can you talk about like why, why even before me look I was you know pretty happy with where crypto was moving up until like the

[00:18:29] start of November and then all of a sudden we said that you turning in. So, you talk about that like up to 30 days before the event we all saw with CZ and Esther. Yeah, like what?

[00:18:38] So, um, I've got to be a little bit careful as to the roads that I go down here, both in terms of the people that I've talked to and, um, you know my own position in this space right, you know, you don't, you don't want to

[00:18:53] force people off. Yeah, yeah. But before I before I say anything again, I want to add that you know I want to see a positive resolution to this like a positive resolution to a Genesis DCG Gemini is a really, really good

[00:19:07] thing for the crypto ecosystem not only for individual investors that have money in in Gemini earn and I know a bunch of them personally. I have friends you know close friends that have money in that program and are wanting to hear what's going to happen right.

[00:19:26] So, I want a positive resolution of that so all of that out of the way. Genesis creditors and I will I'll say you know a half dozen of them. Am I initial conversations when they started to come to me?

[00:19:44] They were concerned that they weren't getting the full story as it relates to, where where where the loans were. What the inter-company balance sheet looked like between Genesis and DCG? And you know they'd been given some information but then then information changed and then it changed

[00:20:10] and so when the FTC collapse, FTX collapse happened and you know there was an initial week where all hell was breaking loose and it looked for almost the near certainty that Genesis you know would have to declare bankruptcy.

[00:20:28] People were upset people were upset because there was a a timeline of we were told this then we were told that and then now we know this and so Genesis creditors who again are different than Gemini in general than Gemini earned creditors right Gemini earned creditors.

[00:20:53] In traditional finance there's a there's a grouping of customers and generally they look like this there's there's a group called Massapluet type of folks Massapluet have 50 grand a 250 grand in liquid assets right. Hynet worth individuals are a million plus ultra-high net worth folks are 10 billion plus right so

[00:21:12] Genesis creditors generally speaking are that ultra-high net worth group Gemini earned creditors are your Massapluet type folks. So Genesis creditors you know you're ultra-high net worth type a type of an individual or entity a good portion of those are family offices to be quite honest.

[00:21:33] They're going to different set of expectations. They've got a different set of we expect and deserve access to information and data and conversation that is different then a Massapluet type of individual.

[00:21:49] So so if I'm just kind of cutting through that a bit it was those people have expectations on the information they'll be given about where their investments are they were given some information and when you're given an information to that level customer you expect that to be

[00:22:01] gospel and not only was it changed once it was then changed again so it was kind of that confusion around like all right people don't really jerk us around like this or lie now they are Andrew

[00:22:13] you know do you have any connection into the so like that yeah again and I'm messing up with directly how it went but just like there's some smoke here let's figure out where the fire is

[00:22:21] yeah so yeah there was no remember nobody knew about the 1.1 billion dollar promise story note that existed from Genesis to DCG nobody knew that existed right it wasn't public information and who's money was that that Genesis lent DCG that would be Genesis creditors right

[00:22:47] so you have a situation just to double click on that as I'm like to say because Genesis Genesis earn or Genesis yield program which is separate from Genesis cold storage custody and I have some questions about your thoughts on their custody stuff but on the lending side

[00:23:06] that was tapped into by Gemini earn as well as all these private offices and everybody else but there's also countless smaller retail apps don't it app is a good example then also builds into the api's for Genesis yield and had thousands or tens of thousands of smaller retail

[00:23:22] customers so I think that impact is pretty big but on paper and keep in mind my thoughts about Genesis are in line with yours that you stated at the beginning of the call so I won't restate those thoughts

[00:23:33] but on paper it looks like two companies owned by the same people one took customer funds to invest do whatever with and that sounds very similar to a story that's ringing a bell

[00:23:53] from I don't know eight weeks ago where two companies owned by the same person one took customer funds and lent them to the other how is this any different in your eyes that's a really great question

[00:24:07] that's a so all the police hope is yeah because we're talking it is and it's I think what the I'm not entirely sure if there's a legal difference which presupposes a lot of follow-up

[00:24:23] questions but before we get to any of those I think there's a philosophical difference though and that philosophical difference is is we're talking about again the group of creditors that are having discussions with Genesis about fixing this issue again our ultra-high net worth

[00:24:50] folks the massive fluid folks at Donut App or Gemini have a they don't have a voice other than leadership at those organizations right so it's a you're saying the creditors one creditors is sophisticated creditor and there are certain when you are a solicitors know when you are considered

[00:25:17] a sophisticated investor or credit investor lots of different terms for it you can kind of do anything you can kind of invest in any sort of yield crazy whatever you want as long as you stay inside

[00:25:31] these guardrails you can invest in anything and the the argument is because you're sophisticated you understand the risks that come along with it so if you're a sophisticated investor giving money to

[00:25:41] Genesis who's giving money to DCG who's ultimately giving money to Alameda who's giving it back to FTAx who then gives it back to Alameda who's going on so forth at the end of the day there is this legal

[00:25:51] there is this legal ground of well that's the risk you took to get this 12% that we are paying but when you're a non-sophisticated retail investor like Gemini earned customers and the tens of thousands of customers that used Donut App or one of the other similar types of services

[00:26:09] there's rules to protect those people and now the question becomes did they break those rules no different than FTAx did by lending customers on style and made it do the exact same thing

[00:26:19] well one of the one of the smartest things that DCG and Genesis have done that wasn't done in the other in the FTAx saga is DCG leadership Genesis leadership have been very quiet off of social media, off of any sort of front facing opportunity and every word and

[00:26:49] syllable that has come out of those organizations be a statement has been as you can imagine remarkably lawyer right so let's cover every base that we have to cover or if the smart legal

[00:27:04] thing is to not cover any base let's not cover any base and so they're aware that these real questions legally exist they're really aware that if they missed step if they say the wrong thing

[00:27:24] that is just going to shine a brighter light on the questions that Joel is asking because as of right now those questions have they they alluded those questions largely it's largely been a story

[00:27:39] about a couple of the hemids that seem to make some fairly bone headed choices about how they are going to invest in some of their own products and issue loans associated with those

[00:27:57] investments right so we go down a road where it looks like DCG decided our you know gray scale GBTC product is undervalued we think it's an opportunity for us to now double down on the quote

[00:28:11] unquote GBTC trade and so yeah let's go ahead and do that and then can we talk about that that piece because one thing that you said earlier was like hey I want to see a good outcome here

[00:28:27] and everyone else should want to see a good outcome here as well if you are someone who holds crypto or wants to operate in the space in the future or you know see the market succeed and I think

[00:28:37] the reason you say that is because of the tremendous market risk that comes from GBTC and how this whole situation may or may not impact GBTC so maybe can we can we touch on what are the paths

[00:28:54] though there may not be many for DCG to get out of this or Genesis to get out of this it sounds like a plan was presented to them by the creditors as a group saying hey this is what we think you should

[00:29:06] do as the creditors I believe your coverage noted that perhaps DCG slash Genesis comments on that accepts it to the lies that by or otherwise by Friday of this week do you believe that that

[00:29:21] like giant pot of liquidity the only place that could possibly come from is GBTC I don't see another path unless it's you know hidden somewhere that nobody with meaningful brain cells

[00:29:39] has figured out at this point I don't see where else it comes from and I think it's notable that one of the few communications over the past months from you know the organizations we're

[00:29:52] talking about DCG Genesis and Gemini was the float of a 20% tender offer of GBTC chips that's very meaningful describe describe what that is exactly just for the so I'm probably not the best guy to

[00:30:14] describe what a tender offer architecture would look like what I do know it's it's going to unlock a certain amount of GBTC but my guess is is Joel was probably better at describing

[00:30:27] what that may look like if I may pun to him I just know that it's a way to unlock liquidity for DCG now the the pattern that needs to be followed for that to have to happen

[00:30:44] Joel probably is a little bit more first and what that's going to look like step by step. I wish I hey I have not read up on it enough at all I just heard that's a definite liquidity event

[00:30:56] on the market for for those shares. I think what it just does is makes the underlying asset which is Bitcoin or Ethereum and the Ethereum trust with drawable for lack of a better word because of

[00:31:11] the yeah sellable right because the GBTC asset I guess I don't know what you refer to that as is trading at something like a 50% discount and it got worse and worse and worse over the last

[00:31:23] couple weeks as this is all unfolded and so if you were to be able to redeem any bitcoin from that trust theoretically what's a 50% discount from here like eight and a half something like that somewhere

[00:31:37] around eight grand of bitcoin you could then turn around and potentially sell it for 16 and let's say and so they can recoup some of that loss from that. Yeah so it's it's a from a 50,000 feet standpoint

[00:31:50] it's their version of if we need to raise capital if we need to create liquidity associated with fixing this problem right if we need to satisfy a sizable amount of our creditors but we have to have meaningful liquidity as the foundation of that satisfaction right so here's

[00:32:15] a scenario right so they say they've got to raise you know I don't know a half a billion dollars right well where's that gonna come from it's obvious at this point it's not coming from adventure capital

[00:32:27] from anywhere not gonna happen so what's their next right there it's their their their next opportunity to do that if they've got to look internally right what assets do they have sell everybody on this call knows that while we appreciate and probably value a good portion of their

[00:32:49] of DCG's portfolio companies right we've done good work at times have been valued at much different values that they are now and you know several of them I think will stand the

[00:33:00] test of time that says nothing about what their value that today right so everything in crypto is down 60 70 80 90 plus percent right so their portfolio companies on average are probably down 85 plus percent so that liquidity pool is difficult right so what's the liquidity pool that they

[00:33:21] have to dip into it's GBTC right and so I think there's a really obvious reason why this is been their last resort or this will be their last resort I think it's important to touch on why

[00:33:37] my opinion of why this is their last resort option that they really don't want to do but if there is no other option is because it's a cash cow for them in GBTC plus the rest of the trust I think

[00:33:49] Andrew correct me if I'm wrong makes them somewhere between 250 and 300 million dollars a year and that is because of the feet collection on that product so any sort of winding down of that product or allowing people to withdraw even at any significant level reduces their cash flow

[00:34:08] and that cash flow they were hoping back six months ago eight months ago whenever that whenever that internal loan happened they were looking at their cash flow and they're saying

[00:34:17] yeah we could pay this back no problem and so they don't want to mess with that cash cow because it's sort of the only thing they have left is is my view on it so do you have any knowledge

[00:34:31] of what the the creditors which I think was largely from Gemini basically presented back to them as the plan do you know that it's D.C. so I can't disclose you know the the specifics of

[00:34:48] the plan what I can disclose is that you know the creditors have put forward a meaningful proposal and have worked with D.C.G lawyers D.C.G advisors and then the creditor groups own

[00:35:05] advisors and lawyers to put something to propose something in good faith that they think works for the entire situation not just for you know the quote unquote ultra high net worth creditors associated with Genesis but the you know the larger ecosystem that frankly is

[00:35:23] owed a bunch of money across the board I've heard percentages of the creditor dollars but I've been asked several times not share that just why I haven't shared it on Twitter but I D.C.G. in Genesis would be fairly smart to give this proposal real consideration

[00:35:51] and when you say percents of dollars I want to ask you to give a specific but I think what you mean there is that they're basically proposing like a return of assets that's a percentage of home

[00:36:02] suggesting okay yep so I'll just use random percentages I'll use the F.T.X example and Sam's on words to prove a point here in Sam's case he estimated or guessed or wants you to think that

[00:36:15] the F.T.X bankruptcy will result in something like 20 to 30 cents on the dollar so where we think the D.C.G Genesis proposal is probably like hey we'll take X on the dollar if you can

[00:36:29] wrap this up within an expert of time is that how those things are typically those are structured but I will add that this is much more complicated right so so it was simply a proposal it says

[00:36:42] you know we'll take X you know cents on the dollar you don't need a bunch of advisors and top legal mice to figure that out it's again it goes back to you know three or four

[00:36:59] spider-man's all point in each other there are trigger points at almost every move associated with outcomes here right so if you know if a Genesis to Claire's bankruptcy you've got callable loans from D.C.G which puts them in a serious liquidity crunch right which then because they

[00:37:22] are if not the largest they're the close to the largest G.V.T.C owner on a planet right so then that puts a greyscale in some level of redemption peril right so they're trying to avoid that

[00:37:37] cascade of potential outcomes so how do you avoid that potential cascade of outcomes I don't know I don't know I'm not an advisor and I'm not a lawyer but my guess would be is that they're trying to structure a new type of debt arrangement that adjust time frames

[00:38:00] that adjusts certain types of capital return structures and assumptions that would be my let's call it educated guess does that so that solves the that solves the immediate like legal or bankruptcy risk issue for G.C.G Genesis but does that solve any of the

[00:38:30] immediate liquidity issues like for instance 900 million dollars is the number that's being used for the Gemini earned product that sort of locked there you have who knows how many tens of thousands maybe a hundred thousand plus people that that impacts they're all panicked

[00:38:47] or they feel some level of panic now imagine that they agree to a a longer payback period a different you know debt settlement that you're still gonna have 900 million dollars of probably immediate liquidity where people as soon as they can are gonna rip every penny back

[00:39:06] because they're like I just want out of this this is about worth eight percent and I'm never going to touch this again that doesn't get solved by so or doesn't your the end of your commentary

[00:39:19] there is absolutely correct that assumption has to be made by their advisors and their lawyers so I would I would avert our eyes to a couple of things over the past week and again when you have really smart people in a room leadership at PCG leadership at Gemini

[00:39:48] and they've kept quiet right on the most part but they've mentioned things like tender offers and let's see other term that they used there's another term that they used about the liquidity duration concerns okay I think that's the I think that's the phrase that they use

[00:40:14] liquidity duration which is to say that there is a low note outstanding that's a 2032 note there's a large note outstanding that's a 2023 right so any answer to these types of questions has to be focused through the lens of those pieces of commentary a tender offer and liquidity

[00:40:37] duration those are the pillars by which internally they're trying to solve this problem now if we begin to trickle that down to what does it mean for Gemini earned customers

[00:40:51] say the guy that I've had lots of folks from Gemini earned each out to me and the answer Twitter guys that you know folks that you know have 10,000 in the program 50,000 in the program 30,000

[00:41:04] in the program we've all lived enough life here all of us I think were around when the financial crisis happened the little guy is at the one that wins in this this that's the trip it's not right

[00:41:22] well Andrew sorry to cut you off speaking about that little guy that's where I have concerns on the custody side we're talking about the living program obviously and withdraws are still offended right

[00:41:36] custody has been unaffected and you presumed to believe I presume to believe at least that all the cold storage custody services the genus providers are just one to one held in cold storage like

[00:41:47] they're supposed to be so fingers crossed that's true if Genesis as a firm were to file for bankruptcy is a Europeanian that the assets in custody get frozen kind of rolled up into

[00:42:01] this bankruptcy to be hopefully paid out at a later job that the answer to that would lie in the legal set up of Genesis as a firm and the entities that are Genesis custody Genesis lending and there are

[00:42:19] three or four other entities that exist inside of the Genesis you know brand so I don't have access to the corporate documentation associated with how are those entities split are their legal fire walls

[00:42:36] that exist associated with that actual question that you're asking right the answers would lie there and my I would assume now we all know what assumes sometimes gets us right so all the

[00:42:54] caveats there but I would assume that and this might deferral to I still believe that the you know potentially the folks that are the leadership of these folks want to do the right thing and have been

[00:43:08] smart players in a space up into this point I would assume that they were smart enough to make meaningful legal distinctions between Genesis custody versus the Genesis lending to not do that

[00:43:26] would be problematic as you are given the nature of your question yeah it would be detrimental because I think you know the lending impacts small apps that were using sort of the lending uh

[00:43:41] Gemini being not small Gemini yeah Gemini being the largest but on the custody side I don't think people realize that so many real I'll call them but like tradify financial institutions use

[00:43:55] Genesis custody and so if there were issues where hey those assets should be back to one to one and let's assume for a moment that they are but due to a bankruptcy they become temporarily unavailable

[00:44:08] as that gets litigated, due to get it however that's described their stock that's a problem for a lot of financial institutions that have built solutions on top of Genesis custody as they're

[00:44:22] back in so I think there's two major risks that make me really nervous about this whole thing one is the impact to custody because that is going to have huge waves for all these institutions that

[00:44:38] you didn't realize were built on Genesis but they are and then the second thing is the overall market impact of a GBTC on-line because I agree with you that that is the only solution that they have

[00:44:53] given the public knowledge now maybe they have a pile of cash that they're sitting on that nobody knows about I doubt it otherwise that would have been the first thing that they deployed

[00:45:02] if GBTC is unwound or allowed mass reductions or even some reductions you have a bunch of people that have been staring at a 50% reduction from that so if the big ones at 16,000 they've been looking at $8,000 in their account in their retirement accounts is where GBTC is often held

[00:45:20] in their brokerage accounts and the second that they're able to suddenly you basically see that balance double instantly right you were to allow reductions you got to believe that just the psyche of many people say wait I've been looking at this account balance $1,000 it's suddenly at 16

[00:45:40] I'm done I'm done and I don't think that the liquidity is left in the Bitcoin market much less the e-thmarket etc etc etc to be able to take what 10 billion dollars of Bitcoin

[00:45:53] is that where the current value of GBTC of all of the money it's the reason why the language associated with a 20% tender offer okay so that there's so much behind that for that to be released right that language and that possibility to be released that means that

[00:46:21] the lawyers for DCH and advisors for DCH have spent hundreds of hours evaluating the various scenarios that we're talking about in this podcast before releasing those words they have to know so and I don't I don't know what those in it it makes perfect sense to you and

[00:46:46] that if they open up quote unquote reductions that there's going to be a wall that will overwhelm gray scale and GBTC into a point of we don't want to have anything to do with

[00:46:59] this anymore and I'm out and by the way I just doubt like you said I just doubled my money right that's that's about the only product in crypto right now that if you hit the sell button

[00:47:13] right in a way that the trust is set up you double your money it doesn't exist anywhere else right so so point being is the lawyers that are getting paid at minimum 1,000 to 1500 dollars an hour

[00:47:27] and there's not just one guy sitting in their figure in this app there's lots of them right for the language of a 20% tinder offer to make its way for public consumption is that is something something they have figured something out that avoids what you're talking

[00:47:49] about Allen in some way somehow a 20% tinder offer it would seem to me would avoid a rush of redentions that it would be only 20% that would be even allowed to be redeemed you see what I mean

[00:48:06] that that makes sense to me I don't know if that's legally feasible I have no idea so so is it the may this might be the so I'll have to be the dumb guy here I'm not a builder I'm a

[00:48:19] trader I just know these guys know it for a long time but I so I'm a trader I started trading equities 12 13 years ago and I got on the crypto because it's more fun better volatility etc etc

[00:48:30] as a trader if I knew that was coming like my brain immediately is going find ways to short Bitcoin or or quite frankly because it sounds like what you're talking about is 20% over x amount of

[00:48:47] period right it's what they'd be talking about like we can release x amount you can't generate all the first 24 hours or whatever that will cripple the industry until that redemption time is done

[00:48:58] like think about it no handout so ever given in crypto ever so if you're looking going all right we're gonna do 20% it's gonna be spread out over five years we're in a bear market for five years because

[00:49:08] we're not gonna hook people up we're making bad choices and having another run in the market it's just not gonna happen that's not how this industry works I think that timeline's unrealistic though and the

[00:49:18] reason I would say that is because I think a lot of people's hope and more recent buyers of Gbtc and this is just my assumption is that they hope that there's a path towards

[00:49:30] making this product an ETF product and the day it becomes an ETF product problem solved and and so five years you would have to imagine that this ETF this ETF problem gets solved within five

[00:49:45] so and so you could be buying 16,000 Bitcoin for $8,000 right now on the long play that when the ETF happens you're like hey man I don't need to sell I just bought Bitcoin for $8,000 which is a value level

[00:49:58] for me for long-term holding is that the idea? That's what I think a lot of Gbtc buyers recently have felt and unfortunately it has only gotten worse the discount to nav has only increased over the

[00:50:12] last three weeks or four weeks or I guess we're five six weeks into this now but it's gotten worse and worse but people are like yeah hey if I want to buy Bitcoin would you rather buy 16,000 dollar Bitcoin

[00:50:22] is liquid or $8,000 Bitcoin that's not liquid and unfortunately a lot of people said I'll take $8,000 dollars it's not liquid I think this ETF thing gets figured out eventually and this spread keeps getting wider and wider and wider. What's the making less? No no no no sorry

[00:50:38] yeah you'll back just a little bit and let's look at some outside of the DCG in Genesis world actions that have happened in the last couple of weeks that still play a part in this story

[00:50:53] right so I'm a huge Michigan football fan I grew up in the suburbs of Detroit yeah same you go I'm a student to go I'm a student to go what do you go what do you go so this all right you'll be

[00:51:07] fine. So let's start with Kathy Wood right who you know a lot of people in traditional finance you know want up want up you know she stakes right out she's done she stakes she knows she's doing well

[00:51:22] Kathy Wood knew what she was doing for a really long time okay really really long time it's no different than 2020 Jim Harbaugh has a two and four season right and half of the

[00:51:35] people that are Wolverine fans want to want to broom him out right I wasn't one of those guys and I thought to myself wait a minute Jim Harbaugh didn't forget how to coach

[00:51:48] because he had one bad season right so Jim Harbaugh still Jim Harbaugh got it's been wildly successful in a fell wildly successful now in the college ranks and previous to 2020 Stanford San Diego

[00:52:03] an amazing coach right and it's proven that out all right Kathy Wood is really really smart okay really really smart and it's really comfortable with risk right well who bought a bunch of

[00:52:18] GVTC lately Kathy Wood did okay now a bad year which Kathy has had doesn't make her not what she would does a 2019 18 17 16 15 okay she's really smart right so she knows Kathy Wood has the ability just like anybody else

[00:52:43] she wants it runs a public firm but she also has venture capital arm as does the A 16 these are the world you know a bunch of places right so Kathy Wood chose to deploy capital

[00:52:58] in the midst of the wild concerns and all of them seem to be serious and well founded concerns associated with GVTC a tender offer discount DNA B of 50% a depressed overall GVTC price that's

[00:53:21] you know anywhere from 7 to 50 to 8 bucks she decided to push in to that risk right so what does that mean does that mean that there's an arbitrage play associated with the 20% tender offer

[00:53:38] that seems to make a little bit of sense what does that mean yeah I mean what does that mean in terms of a potential GVTC Genesis Gemini DCG package that includes liquidity associated with the 20% tender offer and includes a reduction in creditor repayments and handles liquidity duration

[00:54:06] that ends up being a plus plus outcome for GVTC and ARX position. These are all things that that's the point of all of this is that it's very difficult to find answers that my simple brain wants to say alright this is what's going to happen you know a

[00:54:28] Genesis bankruptcy was kind of it's same like an evitable and okay that's what's going to happen but then you get another piece and another piece you have to be like wait a minute the Genesis

[00:54:37] bankruptcy would be like quite possibly the first scenario here because it makes you know it turns into real solvency slash liquidity issues for DCG which then turns into way more than probably a 20%

[00:54:52] tender offer associated with you know GVTC's position yeah yeah yeah yeah right and oh by the way if Genesis declares bankruptcy that 900 million it's owed to Gemini or in folks that it's gone

[00:55:05] that their money's gone that's not there's not going to be resolution right so it sounds like to you because of maybe this is my my peabrain over simplified things but it sounds like based on what you're saying is the silver lining of them being so woefully intertwined

[00:55:29] is that they actually have to work together to find a resolution or else everybody's screwed that's a fair way to look at it had they not been so intertwined what happened each time each solid would have fallen on the road a little bit more was but you know

[00:55:51] well that my initial conversation with creditors there was a pretty significant amount of I'm mad I'm pissed off I didn't get the information that I thought I was getting I I am not happy with both my financial position and you know the ethical potential issues here

[00:56:18] and as time has gone on based on your premise Jared that has softened in a big way and creditors want a resolution and now of course they want the best possible resolution for their individual situation but they realize what we've come to understand on this

[00:56:41] you know this podcast that the initial reaction of I'm angry I'm going to sue they're going to declare bankruptcy is you know is nuclear waste it's a tire fire it's a garbage dump fire right nobody wins it's all bad so that has softened and the reason why

[00:57:05] DCG and Genesis are you know being very careful about what they say as well as you know not saying anything for now a month to to some extent is because there's there's there's they've got to come

[00:57:23] to they've got to find an outcome where they have void whether you know in earnest or at least you know in a way that it looks and sounds the very real questions that Joel has been asking here

[00:57:39] where the funds come from how were they used how is this different than FTX given that these aren't you know as we come to understand Sam being a fairly drugged up making wildly terrible decisions right the group of guys in this instance are not that

[00:58:03] these are thoughtful guys that up until this point have built meaningful brands and reputations in crypto so unless they're determined to destroy that right based on the questions that Joel has asked about the flow of customer funds they've got to come up with a solution

[00:58:26] that handles that or at least is marginally believable and satisfies constituents that will in a way go out and parent that narrative yeah it makes sense I mean DCG has every interest in ensuring that the Bitcoin market and the overall crypto market doesn't crash further than it

[00:58:57] already has because their problem gets worse as Bitcoin falls because the value that they have in GBTC falls and so the pile of cash the only pile of cash left gets smaller if that happens

[00:59:09] so you know Jared's here point as a trader I think you would agree that at some level everything is priced in and now you can argue like crypto's not great at that but you know I think the market is

[00:59:24] maybe trading where it is knowing that this risk is out there but if it did actually come to like immediate liquidity and I'm sure it would never be all a great skill Bitcoin is suddenly

[00:59:37] unlocked at once and you know that would be like a a COVID crash date and you would see exchanges after shut off to save us but so Andrew for sake of time what question have we not asked

[00:59:51] that that we should have today is there anything else that you think is important for people to know that guide that has money on Gemini that's you know hoping for an answer I think what if we

[01:00:02] not ask there's something that hasn't been asked I think Joel's questions about where did the funds come from ultimately and where did they go I think I think those are very important questions given

[01:00:16] the current conditions and confidence that needs to be restored in the crypto space that those are very very important questions for the guide it's you know go ahead Jared. That's just a real quickly because we're talking about transparency perspective and what they're trying to do in the

[01:00:35] resolution is your is your thought that whatever all the smart people in the room trying to work something out here all those questions really will be answered or it'll just be good enough like we think actually it's a fairly realistic slash cynical guy right so my assumption is

[01:00:54] is that when you got that many lawyers in the room that many advisors in the room you're finding the best possible solution for your brand and your capital position right so in those may at times

[01:01:10] be congruent paths those may at times capital and brand may be different paths I would assume that you know Genesis would want to remain a major major you know liquidity provider and institutional type of brand associated with TCG I would think that DCG would

[01:01:34] would want that to continue I would think that they would want their race scale brand to recover in some way shape or form from a reputational standpoint even if that takes a year or two four five

[01:01:47] so all those things are in play you know how are we going to get a you know a thesis about every dollar and every penny and every decision no chance yeah that that that that that that

[01:02:00] okay it right on top of that because it sounds like when you and Alan both came to on this you're you're like spending this forward and maybe again this is me over simplified things but

[01:02:12] isn't that so first off just yes or no the best potential outcome is an ETF is approved from the medical yes but that's the least I mean I don't know about best because I don't know

[01:02:26] all the outcomes I would say yes that's a really good outcome okay okay so so knowing that like based on what we talked about if the ETF were approved we're like you have that one to one in and out

[01:02:35] and there's an ETF that you can whatever because then the cafes of the world and those people are loading up and they are by while the hold it because they'll they'll have the premium right so like

[01:02:42] then you're like hey this is that that shows up and you're like how the market yeah it's the best outcome for the GBT price but is it the best outcome for the crypto market at

[01:02:54] whole because if you're assuming that Kathy Woods is going to come in and buy GBTC you also have to assume that they're going to go redeem on the other end of it and that that you're going to take the

[01:03:03] arbitrage yes and so like that means Bitcoin has to meet somewhere in the middle and that's 13k 12k okay and so it can be I would say the best outcome is that they agree to

[01:03:17] some small percentage that they believe the market can't absorb or is already planning to absorb because the 20% numbers out there yeah we should be we are theoretically trading on the idea

[01:03:27] of the 20% of GBTC might be okay redeem well okay so so fair enough so yes and with caveats and that's why I kind of simplified it because what comes down to is who approves the ETF guys nobody

[01:03:40] is who would approve the ETF no one's gonna prove it right now I know but like if somebody were to with that not be the SEC with that not be going back to Gensler and people saying yes so we're

[01:03:51] essentially saying that the best possible outcome for crypto at large for Bitcoin at large for all these credits for all these people is going to be the SEC saying yes you can have any

[01:04:01] T. which is why like what we're saying when a total of three three main info statements have been put out in the last three weeks there was a initial statement from DCG that admitted to the

[01:04:14] promissory note admitted to other loans and admitted to on paper what it looks like their situation then there was the gray scale investor letter which worked very very hard to distance themselves

[01:04:30] from DCG in Genesis then there was a a wake of us essentially a tweet slash release associated with with we've put a proposal in front of DCG in Genesis and then there was the communication about a

[01:04:55] 20% tender offer that is that is that's the whole thing right now that that is finding a way forward associated with a tender offer whatever the proposal numbers are my best guess is there has to be

[01:05:16] a delta between that 20% tender offer and whatever the Genesis creditor groups tend to offer looks like there has to be a delta in terms of total capital between a discount and a tender offer right

[01:05:31] so let's say the Genesis creditors tender offer is X and I'm sorry the Genesis creditors discount to their capital is X and a tender offer would equal Y that algorithm would have to turn into

[01:05:46] a total of liquidity that would begin to fill the hole and begin to make meaningful senses it relates to again the language that they used associated with liquidity duration right there has to be an equation that not only works but can be enough of a narrative that people

[01:06:09] believe it right that they believe it because if we know anything so if we know any I add you think in general from you know a populist standpoint right there's not a lot of geniuses up there right

[01:06:26] but there are some real smart people in crypto right that as I mentioned in my Genesis of starting my crypto journey I was at a conference they had the smartest people in finance tech and engineering

[01:06:43] right so they're going to you know whatever is announced they are going to they're going to they're gonna turn anything upside down right turn upside down so if your DCG Genesis Gemini um Grayscale man that's the reason why they're paying rooms for a horse you guys remember the

[01:07:07] you remember the movie Michael Clayton you ever seen that movie Michael Clayton okay if you have you had it and so the movie starts with a you know a walk down a hallway of a massive law firm in New York City right

[01:07:20] and then you walk into a room and it's filled in the middle of the night with 70 lawyers right and what they're doing is they're putting the final touches on a decade long class action suit associated with an agricultural company that it killed people you know essentially

[01:07:38] right well that's the scene associated with we have to find a solution here for DCG Genesis Gemini there are rooms full of lawyers that the only reason that they're not at home for the holidays right

[01:07:56] now is because they're getting paying $1500 to $2,000 an hour to do this work right and so it's their job to come up with a solution that you know makes parties reasonably whole while while it also being reasonably believable and limits the liability associated with the brands

[01:08:20] and the individuals associated with the brands right it is yeah it's a it's a tall order for sure yeah thank you so much for for a lot of my really appreciate your time and also thank you for all

[01:08:35] the information that you've been so willingly putting out on Twitter really to like no benefit of growing up in notoriety I mean I've talked to you a couple times you've been on hours and hours

[01:08:45] of calls with Genesis creditors and no skin in the game I've been just trying to keep people informed so so thank you for that I've got one final question for you that should be easy maybe not easy to

[01:08:55] answer but a short one what what odds what percentage chance do you think around DCG Genesis accepting the offer that they've been given this week yeah yeah okay it's better than I thought we'll leave

[01:09:12] it at that Jared if you would play a song yeah yeah well thank you again and you're a pleasure meeting you follow my Twitter at AP underscore arch public in the video I'll have your

[01:09:24] Twitter information up over your over your picture here but this was a lot of fun and if we get some more full updates would you would you come back and try this again that's all good too

[01:09:36] cool we have happy holidays to end with pleasure meeting you let's like it's play out we got our sweet baseline music come on you crypto parable apocas this was fun episode number 16 last

[01:09:49] one of the year I can say to you we got holidays we got times off hopefully we have more resolutions next time every week have a good holiday season to take care