I remember it as if it was today: a few days after the so-called “dotcom bubble” burst, the people who carried us until the day before (they carried us from the first wave of Italian startups) in the palm of their hands suddenly avoided us. Someone within sight of Turin important (goes), always full of compliments, one morning after the Nasdaq crash, seeing me from afar, shifted the pavement trying to pretend not to see me and so not have to say goodbye, I suppose there was an embarrassment, as if I blew the bubble (LOL).
Overnight we became killers
All this was interesting to watch: it has been shown that people who are not experts in a particular sector – and one cannot objectively be an expert in everything – tend to lump everything together when presented with rather catastrophic news relating to a specific world.
Something like this has been happening so far: developers who would even pay a few months to work for a crypto company today even sometimes avoid interviews, many friends call me out of fear to make sure “everything is going well”, and others know what If the cryptocurrency sector is dead and their bitcoins will be dumped.
I want to reassure everyone: everything is fine
Those who, like us, have chosen a model based on transparency in unexpected times see many opportunities in times like these. But we know very well that it is not always Sunday and that when it pours, even those well equipped with umbrellas and raincoats can get wet.
On the other hand, the situation is definitely worse for those who believed the sun would shine forever, i.e. most CeFi companies, centralized companies (by definition) that somehow use cryptocurrencies, decentralized by nature, for redundancy, often in an opaque if not cloudy way, Certain models of classical financing.
As we all know, it happened first with Celsius, then with BlockFi, then with 3AC, FTX, Alameda and many others. While writing the previous post, I received constant rumors of increasing difficulties for important centralized entities, like Genesis Trading for example. I decided not to talk about it because news is one thing and uncontrollable gossip is another.
Unfortunately some of this gossip turns into news as I write, and news can get worse.
Digital Currency Group (hereinafter DCG) owns Genesis Trading and Grayscale, two crypto giants. DCG owes $1.1 billion to its Genesis Trading subsidiary (but someone is talking about half a billion and it’s not clear who is right) which, without that money, fails. Because? Simple: it is one of the most centralized crypto topics in the world and as such is exposed, for better or worse, to all waves of the sector. In this case, for the worse: Its balance sheet has accumulated giant holes due to the crashes of the past weeks and months. And here we must understand one thing very well: all these central themes have created over time a kind of informal club, which lends “money” to each other and thus remains entangled in a thousand operations (often very influential) linked together: obviously, If first, a little slime ends up on others and when the slime becomes too much of a pain for everyone, it degenerates. Which is happening now.
So Genesis Trading, which has been blocking withdrawals for days in the meantime, needs one billion pips (or half a billion), otherwise it fails and drags the entire market with it. But DCG doesn’t seem to have it. They asked, as everyone always does, for help from Binance, which said no thanks.
In parallel, DCG, as mentioned, is also the owner of Grayscale which works with two cryptocurrency funds – one in Bitcoin, the other in Ethereum – something very close to an ETF: bank customers who don’t want to own cryptocurrency directly can buy the shares. of these products and thus indirectly exposed to Bitcoin and Ethereum. The problem is that the shares of these two funds are now worth about 45% less than their assets, a sign that the market must have understood how things are in those segments.
So, if DCG can’t find the money for Genesis Trading, the latter could jump in. To avoid going under, DCG could sell Grayscale part of the $10 billion in Bitcoin and $3 billion in Ethereum, the assets of its two trust companies, which would put the latter in a somewhat appalling position towards its customers. Moral: Let’s prepare for another unwanted but potential disaster which, if it happens, will create quite a number of problems for many other subjects associated at least at an operational level with DCG companies.
As I write this it is not at all clear what will actually happen. The obvious hope is that DCG will find a way to keep their castle from falling apart. But there are many tweets the other way around and they don’t make you feel very cool, let’s say. And all this leads to a decrease in the value of Bitcoin and its siblings and this will also lead to a decrease in it. It could be an epic splash.
Why should I be optimistic?
On Monday, in a beautiful hall of the Chamber of Deputies, I participated in the conference promoted by the Cryptovalues Association on the topic: “What are the rules and conditions for the development of crypto activities in Italy?” , in the presence of a large part of the advocates of the Italian sector, personalities from the Bank of Italy, Consob, OAM and senior managers of major banks. Among the interesting things that have emerged, I would like to point out three: the need for transparency and regulation, the hope that the industry will soon find reasons to use cryptocurrencies that go beyond the speculative models behind the crash of 2022 and the conviction of some. Who is present about the fact that it will be the banks that will “save” the cryptocurrencies, or rather they will give them a new batch, the reason being that no one knows better than the banks the task of checking and calculating the risks.
So, if we add those three together and hit the FF (fast forward) key, we could actually find ourselves in a few years’ time in a structured situation where investors are more protective than today about the risks associated with their adoption of digital assets and where the major players in crypto will be banks. , which will move from the stage where they shunned or fought digital assets to a stage where they can offer them to their customers along with a series of related services, first of all custody.
It could be just fine. On the other side of this vision, opposite but not paradoxical, there will be a significant strengthening of transparent, and therefore decentralized, and therefore on-chain activities: even if from the outside it appears otherwise, crypto and DeFi are more powerful than ever in their essence than independent entities resistant to censorship. .
Therefore, it is good that greedy, superficial and inscrutable subjects are swept away: they reap what they sow. Sorry to those caught, but as always in these cases, better late than never.