As digital asset management company Grayscale refused to provide proof of reserves for its Greyscale Bitcoin Trust (GBTC), an independent analyst spent days combing the blockchain to independently verify its holdings.
OXT Research analyst Ergo used on-chain forensics to confirm that, as of November 23, GBTC held approximately 633,000 bitcoins (BTC) held by its custodian, Coinbase Custody.
Grayscale G(BTC) coin part 2
In this analysis, we use additional on-chain forensic CONFIRMATION of the approximately 633k BTC balance held by G(BTC) in Coinbase Custody.
— ∴Ergo∴ (@ErgoBTC) November 23, 2022
Since the collapse of FTX, pressure has been mounting on other exchanges and digital asset managers to prove they hold the funds they claim. The collapse of VOP or liquidation of their assets would be serious black swan event. Concerns were raised due to Grayscale’s relationship with committed crypto lender Genesis Global Tradinggiven that both are subsidiaries of venture capital firm Digital Currency Group.
Independent verification of its holdings will give some level of confidence to investors in the product and the industry as a whole, and will follow Coinbase confirming the holdings earlier in the week.
Knowing that most of the assets had recently been transferred from Grayscale’s previous security provider Xapo to Coinbase Custody, Ergo was able to use public data and chain forensics to attribute a balance of about 317,705 BTC to 432 addresses of probable GBTC custodial activity.
In order to find the rest of the BTC held by GBTC, Ergo had to “search the blockchain” to find other addresses that fit the profile of those they originally found, noting that while the analysis “certainly includes false positives and negatives,” and addresses found to contain BTC holdings almost identical to what GBTC claims to have.
Ergo announced that they had confirmed the hold, adding:
“Which begs the question, why does Grayscale refuse to disclose their stakes in the chains?”
Twitter user Skyquake-1 offered a possible answer when he dug up GBTC’s Securities and Exchange Commission (SEC) filing from January 2017, which states that the administrator “may not disclose such information. [public] keys from the Sponsor, the Trust or any other natural or legal person.”
— illiquidity provider (@skyquake_1) November 22, 2022
Ergo received praise from many members of the community, including Ceteris cryptocurrency research firm Delphi Digital, who retweeted the analysis and he added:
“Ergo is a treasure”
The Twitter community was a a constant source of insight into the crypto industry, especially after the fall of FTX, and even received praise from Coinbase CEO and co-founder Brian Armstrong and Elon Musk for their efforts.