Cryptocurrency investment product provider Grayscale Investments declined to provide proof of reserves or online wallet addresses to show the underlying assets of its digital currency products, citing “security concerns.”
On Twitter on November 18 a thread Addressing investor concerns, Grayscale provided information about the security and custody of its cryptocurrency assets and stated that all cryptocurrencies underlying its investment products are stored on Coinbase’s custody service without disclosing wallet addresses.
6) Coinbase often performs on-chain verification. For security reasons, we do not make such online wallet information and confirmation information publicly available through a cryptographic reserve confirmation or other advanced cryptographic accounting procedure.
— Grayscale (@greyscale) November 18, 2022
“We know the previous point in particular will be a disappointment to some,” Grayscale added, “but the panic caused by others is not reason enough to bypass the complex security measures that have protected our investors’ assets for years.”
Grayscale’s move comes as there is increased pressure on the crypto business to provide evidence of reserves in the wake of FTX’s liquidity problems and subsequent bankruptcy.
Some Twitter users are unhappy with Grayscale’s view that its decision not to disclose wallet addresses is due to security concerns. commenting Bitcoin (BTC) inventor Satoshi Nakamoto’s addresses are well-known and highly valuable to attackers, “however, Satoshi’s bitcoin remains secure.”
Shades of gray shared letter co-signed by Coinbase CFO Alesia Haas and Coinbase Custody CEO Aaron Schnarch, which split Grayscale’s assets across its investment products and confirmed that the assets are “safe”, that each product has “its own addresses on the network” and crypto always belongs to “the right product in shades of grey.”
Grayscale added that each of its products is created as a separate legal entity and “laws, rules and regulations […] prohibit lending, borrowing or otherwise encumbering the digital assets underlying the products.”
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Grayscale is known for its Grayscale Bitcoin Trust (GBTC), a security system that tracks the price of Bitcoin, as well as products that track the price of other cryptocurrencies such as Ether (ETH) and Solana (SOL).
Investors are concerned that Genesis Global, which acts as a liquidity provider for GBTC, announced on November 16 that it would stop withdrawing funds, citing “unprecedented market turmoil”, which resulted in significant withdrawals from its platform, which exceeded its current liquidity.
Genesis is part of the crypto-currency venture capital firm Digital Currency Group (DCG), which also owns Grayscale. GBTC is trading at a nearly 43% discount to its net asset value in part due to investor speculation about GBTC’s exposure to Genesis risk.