Shades of gray withhold evidence of the chain for security reasons

Grayscale Investments, a company that sells cryptocurrency investment products, has refused to provide chain proof of reserves or wallet addresses to demonstrate the digital currency products’ underlying assets, citing “security concerns”. Grayscale Investments is a provider of cryptocurrency investment products. Grayscale released information about the security and storage of its cryptocurrency holdings in a Twitter thread on Nov. 18 dedicated to addressing investor concerns. The company stated that all the cryptocurrencies underpinning its investment products are stored with Coinbase’s escrow service, but declined to disclose the wallet addresses.

Gray went on to say, “We realize that the previous point in particular will be a disappointment to some,” but “fear created by others is not a good enough justification to break intricate security mechanisms that have kept our customers’ funds safe for years .”

In the wake of FTX’s ongoing liquidity problems and eventual bankruptcy, Grayscale has decided to take this step in response to the growing pressure placed on the crypto industry to implement proof of reserves.

Some people on Twitter disagreed with Grayscale’s view that security concerns were behind the decision to withhold the wallet addresses. One user commented that although the addresses of Satoshi Nakamoto, the inventor of Bitcoin, are widely known and have greater value to attackers, “Satoshi’s Bitcoin remains secure.”

Grayscale distributed a letter that was co-signed by Alesia Haas, the CFO of Coinbase, and Aaron Schnarch, CEO of Coinbase Custody. The letter described Grayscale’s holdings under the investment products and reaffirmed that the assets “are secure.” In addition, the letter said that each product has its “own addresses in the chain” and that the crypto always belongs to “the current grayscale product.”

Grayscale further said that all of its products are structured as their own independent legal entity and that “rules, regulations and contracts […] prohibit the digital assets underlying the goods from being leased, loaned or otherwise encumbered.”

Although Grayscale is best known for its Grayscale Bitcoin Trust (GBTC), a security that tracks the price of Bitcoin, the company also offers products that track the price of other cryptocurrencies, such as Ether and Solana. Genesis Global, which acts as a liquidity provider for GBTC, announced on November 16 that it had halted withdrawals, citing “unprecedented market turbulence” as the reason. This “unprecedented market turmoil” had led to significant withdrawals from the platform, exceeding current liquidity. This has caused concern among investors.

Grayscale is also owned by the cryptocurrency-focused venture capital firm known as Digital Currency Group (DCG), which is also the parent company of Genesis.

Investors are speculating on GBTC’s exposure to Genesis, which may be one reason why the company’s shares are selling at a discount of more than 43 percent compared to net asset value.