Grayscale, the world’s largest bitcoin fund, refuses to share ‘proof of reserves’ as shares trade at a 45% discount to bitcoin

Is Grayscale a ticking timebomb? That’s the question investors in the world’s largest bitcoin fund may have to ask themselves after the firm announced today that it won’t share its proof of reserves with its customers, citing security concerns.

In a statement, Grayscale said:

“Due to security concerns, we do not make such on-chain wallet information and confirmation data publicly available through a cryptographic Proof-of-Reserve, or other advanced cryptographic accounting procedure.”

In a tweet, Grayscale said that it realized that failure to disclose proof of reserves would be a “disappointment to some,” but added that a “panic sparked by others is not a good enough reason to circumvent complex security arrangements” that have kept its investors’ assets “safe for years.”

7) We know the preceding point in particular will be a disappointment to some, but panic sparked by others is not a good enough reason to circumvent complex security arrangements that have kept our investors’ assets safe for years.

— Grayscale (@Grayscale) November 18, 2022

The disclosure came after the second largest crypto exchange FTX filed for bankruptcy. Several crypto exchanges have released proof-of-reserve audits in order to reassure investors’ concerns over the safety of their funds.  Last week,

Crypto.com Crypto.com CEO Kris Marszalek announced he would share “a full audited proof of reserve” to reassure customers after the accidental transfer of $400 million in Ethereum tokens to the Asian crypto exchange Gate.io.

Meanwhile, Grayscale also added that it has “compiled more information for investors on our website. We hope to alleviate any potential uncertainties and reaffirm the safety and security of the assets underlying Grayscale’s products.”

Known by its GBTC ticker, Grayscale’s flagship fund is the Grayscale Bitcoin Trust, GBTC is trading at a 45% discount to the price of its underlying asset. While bitcoin is down 72% over the last 12 months, GBTC has recorded an 82% loss in that same period, as of last Friday.

In its statement Friday, Grayscale said that each of its digital asset products is set up as a “separate legal entity” and reiterated that those digital asset products are “stored under the custody of Coinbase Custody Trust Company.”

In a tweet, the firm added that the “laws, regulations, and documents that define Grayscale’s digital asset products prohibit the digital assets underlying the products from being lent, borrowed, or otherwise encumbered.”