Odd Lots - The 'Widowmaker' Crypto Trade That Helped Blow Up an Industry

Episode Date: January 20, 2023

Over the last year, numerous things have gone wrong for the crypto industry. (Too many to list.) But one thing we've learned is that there's an incredibly high degree of interconnectedness between various firms, all borrowing and lending from each other in a way that created a tremendous amount of fragility. A key entity in all this is GBTC, the Grayscale Bitcoin Trust, which was one of the first regulated entities that allowed ordinary investors to get Bitcoin price exposure. Over time, this trust turned into a behemoth, with numerous players making massive leveraged bets on it. On this episode, we speak with Ram Ahulwalia, the CEO of Lumida Wealth, who explains how the fund works, how the trade worked for investors, and why it's ended in tears for so many players.See omnystudio.com/listener for privacy information.

Thanks for listening to Odd Lots. Follow the show on Amazon Music for more future episodes or just ask, Alexa, play the Odd Lots podcast on Amazon Music. Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Wisenthall. And I'm Tracy Alloway. Tracy, a lot has gone wrong for crypto in the last year or so. I think, let's start there. I think that is safe to say that there are many different scandals, blowups. disasters, et cetera. So the background to that intro was right before Joe said it. He was going, oh, how am I going to start this one? And he just went with bad things have been happening. Right.

Like we could go for a lot. We could just list them. We don't need to do that. No. But okay. So one of the bad things that has been happening in the crypto industry has to do with several high profile entities. And I'm still trying to wrap my head around the relationships between all of them.

But we need to talk about what's going on with grayscale Genesis. and Gemini. Right. So for a long time, you know, there's no Bitcoin ETF in the United States. For a long time, like buying Bitcoin might have been a little tricky. Maybe people didn't want to trust like some of these online exchanges, some of them for good reasons. If you were some sort of regulated entity, like a fund or something or an advisor, you might not be able to get your client money into Bitcoin itself. But for a long time, so GBTC, which is this entity owned by a gray scale was like one of the regulated vehicles that one could get exposure to Bitcoin. Right. But not an exchange traded fund, importantly. It was, well, the Grayscale Bitcoin

Trust, I think it's called. And because of its existence, we saw this trade that it really seems like a lot of people in the crypto world were doing where they would basically borrow Bitcoin, deposit those with Grayscale in exchange for GBTC shares. And then eventually they would sort of offload those shares to retail investors. But that only works as long as there's interest in Bitcoin and the price is kind of going up. And now that everything seems to be going backwards or exploding in various ways, it's become problematic. And now we have this huge discrepancy between the value of grayscale's Bitcoin and where the shares are actually trading. So this is really interesting.

For a while, the grayscale Bitcoin trade. GBT, and it's traded, it quotes all day. It was a large premium to the underlying Bitcoin that it held. And now there is a big discount. And the key thing is, is that all of these entities that were in some way trying to arm the spread or trading Bitcoin versus GBT, et cetera, they've now lost a lot of money. And I think, you know, I mentioned at the very beginning, there have been a lot of disasters in crypto.

But I think GBT is at the center of many of them. Yes, everyone seems upset about this. And, you know, I've kind of been following it a little bit, but not that much. And so I am very interested to pick apart the relationships between these various entities. Like, why is Gemini that involved with Genesis? Yeah. How does it involve Grayscale as well? You know, superficially, this is going to be a crypto episode, but really it's like a fund structure episode more than anything else.

It could be anything, but it happens to be a trust that owns a lot of business. Bitcoin. Anyway, we need an expert here who's going to explain what was the GBTC trade that so many different entities got into. Why it gets so much trouble, all these new disputes. I'm very excited. We're going to be speaking to Ram Al-Lawalia. He is the founder of Lumida, which is a private wealth advisor. He knows a lot about this stuff. So, Ram, thank you so much for coming on Oddlot. Thank you for having me. What is GBTC? So, GBTC is the security issued by Grace-Gscale.

Okay. It is a security that trades on the market, and right now it has a discount to the net asset value, and that net asset value is based on the value of the Bitcoin held by the trust. Okay. GBTC is issued by Grayscale, which is a wholly owned subsidiary of digital currency group. And what's the relationship between Grayscale and Genesis and Gemini? Let's just do the whole, like, let's name all the players at the beginning. We'll introduce the cast of character.

So first off, you've got Digital Currency Group founded by Barry Silber, a was and is a storied institution, really one of the blue chip firms that also seeded and invested in quite a few companies in the category. So DCG created a business called Grayscale, and Grey Scale was the first to issue a publicly exchange traded a security that represented access to Bitcoin. It was wildly successful. Also, DCG created the first prime brokerage for the category. And that prime brokerage is called Genesis. So what does Genesis do? It performs custody, it enables trading, and also provides financing for digital assets, including GBTC. What is GBTC?

So it's not an ETF. It's an entity that owns a bunch of Bitcoin and there are shares that won. What is it? That's correct. It's not an ETF. You can analogize it to a closed-end fund, although that's, That's not what it is either. But essentially, it's a security that trades in the market.

It's issued by a trust. And the value of that security, in principle, should be based on the value of the collateral backing the trust, which is about $10 billion worth of Bitcoin. It's not an ETF because there's no dynamic, instantaneous what's called the creation redemption mechanism whereby market makers perform open operations to ensure the NAV is close to the value of the GBTC. So maybe talk to us a little bit more about the differences between ETFs and a trust structure. Like what are the key differences and what is it that seems to be problematic with a Bitcoin-based ETF but is allowed to happen with a Bitcoin-based trust? Sure. So in an ETF, you have market makers that are ensuring that the value, the net asset value of the fund matches the tradable value of the security and arbitrage enforces that.

The authorized participants. So typically banks who are incentivized if they spot a discrepancy between the value of the underlying basket of whatever, in this case, Bitcoin and the shares, they would buy a basket or sell a basket and take it to the ETF issuer. Exactly right. Okay. Now, the SEC was not authorizing ETFs backed by Bitcoin. So what Grayscale did was they issued GBTC in a trust format. So you can think about like a closed-end fund, which are out there. And closed-end funds generally trade at a discount to the net asset value.

So you have all these entities. There's been a million filings for ETFs. And they tend to go in waves, it seems like. And then every six months or something, you get a bunch of denials. Meanwhile, GBTC has existed since it looks like early 2015. This thing has just been like a huge moneymaker. Because as the one sort of like traded vehicle that's been. Bitcoin-ish that offers Bitcoin exposure, almost a monopoly.

Like, how much of a moneymaker was this business? Yes, GBTC was the ultimate carry trade, and it generated hundreds of millions of dollars, over billions of dollars for the issuers and parties have participated in the trade. So at the time when GBTC launched, its premium above the value of the underlying Bitcoin, hell and the trust. Yeah. The premium fluctuated between 30 to 50 percent for several years. So if you engage in this carry trade like Tracy Outline, meaning you buy Bitcoin, you convey and deliver it to gray scale in six months, but you're wearing the price risk at the time of delivery.

So if that premium has held firm, then you capture the value of the premium relative to the spot price of Bitcoin. That discount started to appear. Really, the premium went to a discount with Coinbase going public around that time. But sorry, just to go back for a second, you say there's no, unlike an ETF, there's no like automatic redemption back and forth. Correct. But traders were able to buy Bitcoin and then create GBT. So it was like, it was allowed, there was one direction you could take it, but not the other way. Like, walk through that.

Yeah, this is what I don't get. So you could create GBT shares, but they can't be destroyed. Correct. So GBT scale has this kind of hotel California dynamic. The way it works is you've got to go through a deliberate set of procedures to acquire Bitcoin, create a legal entity, notify Grayscale, and go through a set of mechanics to then capture the premium on the other side and hope it's there. On the redemption side, there is a mechanism to redeem out of trusts.

It's called Reg M. It's one of the statutes in securities laws. And trusts have offered liquidity to investors. However, Grayscale received a letter from the SEC saying that they cannot engage in ETF-like practices. And Grayscale interpreted that and said, oh, the SEC is telling us we cannot utilize regam to create liquidity. And then they modified their trust to expressly prohibit themselves from invoking regam. Although other parties are saying, no, no, no, no, you can actually use regam.

They're reading too much into the SEC action and accusing Grayscale of self-dealing, and trying to keep this cash cow. Right. So this is part of the controversy that we're seeing unfold now. But setting the controversy aside for one second and who's mad at whom, what was the exit plan here from Grayscale itself?

Like what exactly did they expect to be the outlet for redemptions if there was a bunch of selling pressure? The path to liquidity would simply be selling the GPTC. So the secondary market would provide the liquidity. There's no mechanism to enforce the discount to close because reg M is not utilized. That's it. So you're betting that this will trade at some correlation to the underlying collateral. The news doesn't stop on the weekends. Context changes constantly. And now Bloomberg is the place to stay on top of it all.

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Listen on Bloomberg Radio, stream the show live on the Bloomberg business app, or listen to the podcast. That's Bloomberg this weekend. Saturdays and Sundays starting at 7 a.m. Eastern. Make us part of your weekend routine on Bloomberg television, radio, and wherever you get your podcasts. You mentioned the perception out there of self-dealing or reading too much into the SEC, and I'm not going to ask you to, like, render a legal judgment. But can you clarify when these counterparty, are concerned that Grayscale is too conservative about it. And the claim is that it's just that

this is a huge fee collection entity for them. Right. Like what are like the, I don't know, does it have fees in the same way a typical fund is? Like how much does Grayscale get every year from the amount of Bitcoin and holds under NAF? Absolutely. Let me walk you through that. Yeah. So Grayscale files quarterly public 10 Qs and you can see the revenues that they generate. And And today, Gray's Gale is generating probably around 300 million in run rate revenue based on the prevailing price of Bitcoin. If you assume a 65 profit margin, which seems reasonable, they could be clocking it around 170 million, give or take, give or take in terms of net income. I should also point out that the revenue that Grayscale generates is proportional one for one with the price of Bitcoin. So DCG raised through private financing in November 2021 at a $10 billion valuation.

They top ticked the market. That was the exact month that Bitcoin hit their peak value as well. And the way Grayscale generates revenue is they have a 2% management fee. So it's 2% times the value of the underlying Bitcoin collateral, not times the traded value of the GVTC. Right. So, I mean, they were basically printing money when Bitcoin was going up, which is kind of funny because all the Bitcoin purists complain about the Fed printing money. But they're still printing money, right? Yes, they are making money.

Absolutely. It is the cash cow, however, then other parts of the DCG business are feeling stress. Sure. Right. I think this is the cue maybe to talk about Genesis and the relationship with Grayscale, because my understanding was that a lot of these market participants who were borrowing Bitcoin were often doing it through Genesis. Absolutely right. So Genesis was the world's leading crypto prime brokerage. And what does a prime broker do? They enable lending, custody, and trading in an institutional manner. So Genesis enabled hedge funds like Three O's Capital to borrow Bitcoin and GBT and other tokens in size. And Genesis also enabled other non-banks to participate in the grayscale trade. was so blockfi one of the entities that sort of uh i guess blew up over last year how much was the gray scale trade the business of blockfi gray scale made over a hundred million dollars in

revenue and perhaps a lot more than that through the gbTC trade what's really interesting about blockfi is that on the surface it looks like a crypto neobank a slick app yeah behind that surface it's actually capital markets in trading business with skillful individuals that were participating in this GBT trade using their client funds. And that revenue generating machine of GBTC enable the growth of the crypto-Ccify sector Celsius, it was a major driver of revenue. And when that premium flip to negative, it's similar to the idea of like the yield curve going inverted. A key leg or prop supporting these business models was kicked away,

and these businesses had to pivot to find other sources to generate revenue, including lending. I think this is really important here because in the beginning, when you talked about the creation of GBTC shares, there was a full legal process. And this, I guess I hadn't appreciated. There was a whole process you had to set up, set up a relationship, set up a corporate entity, et cetera. So one way to think about these sort of like crypto-C-Fi entities, whether it was blockfi or Celsius, et cetera, was they did that. They set up that entity. And then as long as there was that premium, it doesn't really matter the price of Bitcoin, as long as there was some premium that existed, between GBT and BTC, they could use that legal structure that they had made to take in money by Bitcoin and attempt, I don't know, Arb isn't the right word, but exploit that spread. Exactly right.

They're wearing the risk of whether that premium will maintain at the time of delivery. So how does Gemini play into all of this? Because, you know, we mentioned people being upset about various things here. And the Winklevoss twins certainly seem to be upset. Right. So the Gemini, of course, is one of the United States, the largest crypto exchanges competing with the Coinbase. People in crypto want yield.

That's what the lesson is from Celsius. It's the lesson from Blockfights, listening from Voyager. People want to earn high yield in a then zero rate interest environment. And Gemini spotted the opportunity, and they created a program called Gemini Earn. And in that program, the creditors face off with Genesis. So Gemini offered the ability for retail investors, accredited investors, and institutions to make direct loans to Genesis. Gemini was acting as an agent. They weren't taking credit risk themselves. sells, they didn't put Genesis loans on their balance sheet. They were really like an offerer of

this program, marketing agent. Was coin, you know, there was a, at one point, Coinbase had this thing. They were going to do an earn thing. And then they're like, oh, we got a letter from the SEC. They're not going to let us do it. Was that going to be roughly the same style of business? Similar, yes. So the SEC, it's been reported, Thrando Wells notice and Coinbase stopped. Also, recall the SEC did find BlockFi. Yeah. For similar programs. program, $100 million. Again, what was BlockFi doing? BlockFi was paying out interest and there was no registered securities offering. If you want to pay out interest or you want to re-hypocket deposit, you have to be a bank. Only banks have exemptions from securities laws.

So on this note, another bad thing that has happened in the crypto space recently is that Gemini, as well as Genesis, have been sued by the SEC over this Earned program that you just described, basically for breaking securities rules. And one of the criticisms that that we've seen online, you know, from, I guess, investors who are probably burned by some crypto things is, well, why didn't the SEC say something sooner? You know, they knew that these companies were doing this program. They'd maybe issued warnings to BlockFi, things like that. What's the rationale for that? Why wouldn't they have moved sooner? Sure. So first, Tracy's going to put me in the uncomfortable position of defending the SEC here. I only ask the tough

question. Is shredding your reputation on crypto Twitter? Let me do my, my, my best here. So the SEC has indicated through public statements and enforcement actions, including on BlockFi, that they perceive exchanges offering unregistered securities to the public. So they're trying to say, hey, guys and gals, clean up, otherwise we're going to have enforcement actions. That's one. Second is the way to think about the regulators, a metaphor to use here is like the fireman. Okay. So if there's a fire in the house, you call the regulations. You call the regulations. You file a complaint. You say, hey, protect me.

The firemen show up. The house is already burned down. But there's probably a safe with some assets in the basement. And then what does the firemen do? They'll say, did you adhere to your building code standards? For example, that would be, did you have sufficient disclosure? Did you say may lose value in bold, all caps? And that's not on the loan agreement, for instance.

The SEC will say, okay, if you complied with the building code standards, then you probably aren't going to get a penalty because bad things happen. Also, if you had a legal opinion, meaning you had an inspector show up and said you're doing things by the code, you're going to have less liability. But that's what happens. And the reason why that's the case is the SEC regulations, American securities laws, are grounded on a disclosure framework. It's not a licensing regime like banks. If you're at JP Morgan, there are dozens of regulators that are on site, that can access books and records. They have to prove new products. they're stringent controls.

Whereas in the American capital markets, what drives entrepreneurship is you don't need a chief compliance officer or a lawyer on staff to raise capital or be in business. That is the tradeoff of the American approach to capital formation. There's just an expectation of disclosure. There's an expectation of compliance with the law. Right. So the SEC will show up after usually a mistakes happen. and they'll start to take names and take actions. And try to set an example for others in the industry.

And that's why they put these public releases out saying, we took action, here's a fine, and everybody else better clean. Because the SEC can't truly police the category. They've got to find examples. Remind me, what was the peak of the premium that GBTC was to the Bitcoin, like 50%? Yes, it got up to 50%. And I think then it got recently down to like a 50% discount or pretty close to that. Correct.

It's bounced back a little bit. We've had this rally. Are there steps the DCG could take right now to close that nav, but that would come at the expense of fee generation? Yes. Grayscale could utilize the regam redemption. First, they'd have to modify the provisions of the trust to enable them to do that. Okay. And then they could redeem out Bitcoin, and that would close the gap dramatically.

Here's a tradeoff, though. DCG has 10 million around 10% of the GBTC issued excuse me 61 million GBT on their balance sheet as of September 30th

reporting now they might have sold some since that time that could have caused the discount to widen so it would help DCG's holdings of GBTC because they would also double in value if that glad closes but they will lose the fee generating potential from

owning the Bitcoin. And the right move if you're DCG in a self-interested capacity is not to permit that. You're better off taking the unrealized loss on the GBTC held and maintain the fee generation. What does it mean for grayscale and the Bitcoin trust that Genesis has experienced so many problems? Because I think didn't they suspend withdrawals at some point? That's right. That right. They did, right. Genesis a few weeks after the FTX collapse, after reassurances to investors, including repping to the solvency of their business, suspended withdrawals. And if you take a step back, this is another common theme in the category, is this pattern

of non-banks acting like banks. And of course, Tracy, we saw this in the fintech lending category as well, but what do I mean by that? Yes. For our listeners, Rahm and I go way back to fintech and peer-to-peer. lending, which is when we first started talking. Maybe one day we'll have... There's a lot of overlap, actually, with crypto.

Maybe one day we'll have ROM back for my dream episode or the what is fintech that I always... Because I still don't know what fintech means, but that's another, that's another way. Yeah. So what is a non-bank doing here? Non-bank is taking short-term liquid deposits. That's what we call a demand deposit. You can go to your bank and say, hey, I want my funds back. When you go to your JP Morgan checking account and says you've got $10,000 there, those

dollars aren't actually there. They're being lent out. the other side. And banks can pull that off because they have two things, FDIC insurance to guard against a bank run and a lender of last resort. But it's a great business to borrow short and lend long. That's what banks do. And that's what these non-banks, including block viz, Celsius, Voyager, and now Genesis have done. They're borrowing short-term liquid deposits that are callable. They can be redeemed whenever the client wants. But they're lending against long-term, long-duration assets that are illiquid, not marketable securities. So when you get a run on the bank,

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Yes, 3AC was maybe the biggest better on this GBTC carry trade. Voyager, were they doing? It's not clear whether. their Voyager or Celsius was, BlockFi was. Just on 3AC specifically, because they were not like one of these C-Fi fintech things. So what was it, how did, how were they going about the GBTC trade? So they were borrowing leverage from Genesis. Okay.

And so, and of course, DCG was doing the same trade. We can circle back to that as well. And that's what's created issues at the DCG balance rate. But essentially with three hours capital as a hedge fund, they were buying GBTC on leverage. leverage when the discount was around 20 to 25 percent, betting that that discount would close. I have an existential question based on all of this, which is you talked about how, you know, the people in this space really cared about yield at a time when interest rates were very low. And this is a theme that's come up on the show quite a lot, which is in crypto, there are lots of

very creative and at times ingenious ways to manufacture yield, but it all seems to come from, you know, some form of self-dealing within the crypto space. Is crypto going to be able to maintain those yields going forward? You know, in a world where there is now a lot of doubt and cynicism about the space and still a big question mark over whether or not there is an actual use case for the underlying technology. Great question. So first off, in crypto, if you don't know where the yield is coming from, you are the

yield. The yields in crypto have dropped dramatically because the primary driver of yield generation was the demand for leverage. So if you are on tokens and protocols like Ave and compound, during the heyday, the yields generations were relatively attractive as compared to 0% interest rates in your bank. What you're seeing now, though, is the crypto ecosystem and entrepreneurs are adapting. For example, you're starting to see tokenize real world assets on chain, which I'm very excited about. You're seeing T-bills on chain. So crypto-natives that want to have a non-constitutional, non-banking bankless experience can access yields on chain. I'm not endorsing that, by the way, still early days. I've seen some of these tokens offer greater yield than T-bills. I don't know how

they do that. But that's trouble. That's trouble. That sounds like trouble. I have another question about the premium or the lack of premium for GBT.C. relative to BTC. So as we mentioned, you know, GBTC launched in 2015. It was very difficult in those days to get Bitcoin price exposure. It's become a lot easier. Going forward, like, let's say there's another like sustained Bitcoin bull market. Like, I don't know like if GBT would ever go back into premium again, but there's a, it is much easier to buy Bitcoin or get Bitcoin exposure, I would think, in 2023 than it wasn't. 2015 or even 2018 or maybe even 2021.

How much does that influence potential deviation from pricing? Just the fact that like it's kind of getting less special. We will never, in my opinion, see a premium on GBT again. It was a short-lived premium. And what drove the premium was the fact that GBT enabled you to access Bitcoin through the convenience of your brokerage account. And, you know, as we know, the capital markets are tens and tens of trillions of dollars. You put in a ticker, you hit buy, and not many retail investors read the prospectus,

understand all the dynamics behind it. You know, when you were describing the trust, you were talking about basically liquidity and maturity transformation by non-banks, which to me makes something like the GBTC, the sort of ultimate shadow bank. And I guess my question is, should we have just had an ET? instead. It seems like we ended up with maybe a closed-end structure. Well, I mean, I could argue it both ways. I guess maybe a closed-end structure is better for an illiquid asset like Bitcoin, but tell me your thoughts. So Genesis was the ultimate shadow bank. Grayscale, the issues around

Grayscale aren't so much that they took Bitcoin and listed in a token format on the public markets. It's the allegation of the perception that they're not offering liquidity to their investors through reg M to enable to access that. The SEC chair, Gensler, denied the application for Gray's Gell to convert to an ETF in November of 21. Again, around the peak of the Bitcoin market, and just before the Fed started to raise rates, this is a really a speculative question. Certainly, if there was an ETF offered, investors would utilize the ETF.

It's got lower fees. It's also convenient. There's not going to be a discount. to NAV, but GBTC would still be out there because it still has that hotel California dynamic, that issue of Bitcoin being trapped in this trust would still remain. But so, but GB, they did apply to turn, uh, to turn GBT into an ETF. And so it was the basic bet then that like, okay, we're fees are going to collapse presumably in an ETF structure, but the nav would be so much bigger in an ETF structure that is a worthwhile tradeoff.

Right. It's a rate volume tradeoff. There are competitors to GBTC today. GBT was the first and only game in town for several years. And their competitors and other offerings, for example, Valkyrie has published a letter saying, we're happy to be the program sponsor. Hey, Grayscale, let us manage that for you, which is really a gray scale committing corporate suicide to have to terminate themselves. So you're right. You would see fee compression and you probably would see volumes grow. Well, I just have, we're recording this on the 17th, so who knows what's going to happen between now and people hear it, which should be a couple days. But what are you watching for here? And what should we be watching this development? Because there are all kinds of moving parts. Looking for, one, is there an involuntary petition for Chapter 11 that creditors two Genesis get together and say, hey, we're tired of the fact that there's no resolution and forcing Genesis into bankruptcy? If that happens, then the other things you need to look for. For example, DCG attempted to kind of quasi-bail-out Genesis, not through cash, but by creating

this $1.1 billion loan, they swapped out this bad loan, three-hours capital for this good loan backed by DCG. I would love to see the terms of that promissory note. And if that note, get at the risk getting a little technically, but if that note is callable in the event that Genesis goes through Chapter 11. which Barry claims it's not callable, but there may be other provisions that would force DCG to pay it.

Then that note is really like a noose around the neck of DCG. A Genesis Chapter 11 can drag DCG over. So we have to assess that promissory note in what I think is an increasingly inevitable Chapter 11 for Genesis. Where are Genesis claims trading at the moment? Because they are out there, right? They're trading.

It's been reported on Twitter. take what you want is in the low 20 cents, which by the way is lower than the claims for Voyager block-fine Celsius, which is an indication that markets do not believe Genesis is solvent. Now, Barry, through his public letters, has said and re-insisted multiple times, including over the last eight weeks, that the issues at Genesis are around liquidity and duration mismatch, not solvency. And he has to keep saying that because the loan agreements state there's a representation from Genesis attesting to their solvency. So if they took in customer funds after three hours capital, which they did, or after the

FTX blow up, which they did. And in fact, they were insolvent. They would have violated the law. And that brings you why you have this SEC and DOJ investigation. Honestly, I feel like in crypto liquidity is almost synonymous with solvency. Yes, absolutely. Not in traditional banking for reasons that Rom just outlined. Totally.

And partly is because there's so. like so internal and so convex, I would say. You've hinted that there's all, what's Shakespeare play? You've hinted that there's like a Shakespearean element to all this. What should we, how should we think about this? So this is a big Shakespearean drama with intra-company, intra-family relationships, related parties. Yeah, there's all of crypto, right? So incestuous.

That's crypto. Very incestuous, exactly. So here's my take. Julius Caesar is Barry Silber. He had the DCG Empire. Julius Caesar crossed the Rubicon. That's when Genesis suspended withdrawals. And, of course,

Grayscale is run by his lieutenant, Michael Shannesign. That's Mark Anthony, his trusted lieutenant. Mark and Julius Caesar have a shared love interest. Of course, that's Cleopatra. We'll call that Genesis. We've got to anthropomorphize a little bit. Sure, that works. So you can keep going, but yeah, it is a grand drama.

Rom Alawalia, thank you so much for coming on Odd Lod. I actually kind of get it. Thanks for having me. No, it's really complicated, but you explain this out really well, and it really is extraordinary the degree to which this one vehicle seems to have created so many headaches. So, appreciate you explaining it to us on today's show. Thank you. Thanks so much, Rom. That was great.

And you even defended the SEC a little bit. Don't worry. We won't highlight that. Yeah, we want to tweet out that for us. Tracy, that really was helpful to me, because I understand, you know, there's so, like, first of all, just to back up for it. There's so many things in crypto that start with G. It's so why it's confusing. Gemini.

It's like the three Gs of the crypto apocalypse. Gemini. Galaxy wasn't part of this story. Grace scale, Genesis Gemini. GBCC is like, or DCG, I should say. I honestly think this is, they got to come up with some new names or they all have to merge because I really think this is part of why it's so confusing. Well, I think everything should move away from like three or four letter acronyms for a start. That would help.

But I do think, you're right, that was totally a market structure episode, not necessarily a crypto episode, but it does throw up the usual questions, I think, for crypto, which is what does the space actually look like when all these sort of money-making ecosystems start to fall apart? I hadn't appreciated the degree to which, and I don't want to say their entire existence, but that a big sort of like value prop to the extent that that is a useful term for some of these sort of CFI neobanks was essentially just having established that relationship in order to pledge Bitcoin for GBTC. And how like, okay, once you have that, and as long as there's some sort of premium because there's a scarcity, because it's difficult to get Bitcoin exposure. That's just a money printer. But then once that goes away, then all of these business models just don't really work anymore.

Well, absolutely. And Rom's point about the sort of resemblance to the yield curve is fascinating. And when you think about crypto, like the way it's recreated certain aspects of the financial system, I know it's become a bit of a cliche at this point to mention this. But the idea of, you know, tether breaking the buck is sort of like a money market fund. And then this is sort of like the yield curve. those examples come up a lot. Well, you know, and we didn't actually talk about this at all, but there was a

even more specific, like sort of curve, which was the other regulated way that entities could get Bitcoin exposure was those CME Bitcoin futures, which for a long time traded with a huge premium to spot. And so there was like for a while a theoretically riskless trade that you actually could Arb where it's like you pledge Bitcoin or, you know, whatever, go go long one of them, go short the other one, et cetera. There were guides to how to do it. But all of these trades were predicated on a sort of scarcity of access to Bitcoin that's

now going away. Absolutely. All right. Shall we leave it there? Let's leave it there. This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway.

And I'm Joe Wisenthall. You can follow me on Twitter at the stalwart. Follow our guest, Ram Al-Ollia. He's at Ram Al-Alawalia. Follow our producers, Carmen Rodriguez, at Carmen Armin. and Dash Bennett at Dashbot and check out all of our podcasts at Bloomberg under the handle at podcasts. And for more Odd Lots content, go to Bloomberg.com slash odd lots. We post transcripts, we blog and we even have a weekly newsletter. Go there and subscribe to it. Thanks for listening.

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