Independent Research Confirms GBTC’s 633K Bitcoin: So Why Won’t Grayscale?

by · November 24, 2022

As digital asset management firm Grayscale refuses to provide proof of reserves for its Grayscale Bitcoin Trust (GBTC), an independent analyst has spent days combing the blockchain to independently verify its holdings.

OXT Research analyst Ergo used on-chain investigation to confirm that as of November 23, GBTC owns approximately 633,000 Bitcoin (BTC) held by its custodian, Coinbase Custody.

Since the collapse of FTX, there has been increasing pressure on other exchanges and digital asset managers to prove they have the funds they claim. A GBTC collapse, or liquidation of its holdings, would be a severe Black Swan event. Concerns have been compounded by Grayscale’s relationship with troubled crypto lender Genesis Global Trading, as both are subsidiaries of venture capital firm Digital Currency Group.

The independent verification of the holdings will give investors some confidence in the product and the industry as a whole, and follows Coinbase confirming the holdings earlier this week.

Ergo announced that they were investigating the holdings of GBTC in a November 20 chirping after Grayscale cited security concerns as its reason for withholding proof of on-chain reserves on November 18.

Knowing that most of the assets had recently been transferred from Grayscale’s former security provider Xapo to Coinbase Custody, Ergo was able to use public data and chain investigation to attribute a balance of around 317,705 BTC in 432 addresses to probable GBTC custodian activity .

Related: Bitcoin price still due for $12,000 drop, trader says as ETF guru backs GBTC

To find the rest of the BTC held by GBTC, Ergo had to “scan the blockchain” to find more addresses that matched the profile of those they originally found, noting that while the analysis “certainly includes false positives and negatives,” the addresses they found contains holdings of BTC almost identical to what GBTC claims to have.

Ergo announced that they had confirmed the inventory, adding:

“Which begs the question, why does Grayscale refuse to disclose its on-chain holdings?”

Twitter user Skyquake-1 offered a possible answer after digging up GBTC’s January 2017 Securities and Exchange Commission (SEC) filing, which states that the custodian “cannot disclose such [public] keys to the sponsor, trust or other person or entity.”

Ergo has received praise from many in the community, including crypto research firm Delphi Digitals Ceteris, who retweeted the analysis and added:

“Ergo is a treasure”

The Twitter community has been a constant source of insight into the crypto industry, especially since the fallout of FTX, and has even received praise from Coinbase CEO and co-founder Brian Armstrong and Elon Musk for their efforts.