The Wolf Of All Streets - Grayscale CEO Resigns | Venezuela Attacks BTC Mining | Crypto Town Hall

Starting point is 00:00:00 I'm going to get Simon's opinion first on Michael Sonenschein resigning. If you guys didn't see the news, the CEO of Grayscale, Michael Sonenschein, resigned today or stepped down. Simon, obviously, you've been very deep in all of the situations at DCG and beyond. So curious what you think of that as a knee-jerk reaction. Obviously, we don't want to conjecture too much or make assumptions but uh just your first thoughts uh my first thoughts is i'd probably rather hear from andrew um i'm not reading too much into it at all actually um so yeah me either yeah david and i discussed that this morning maybe the guy was just sick of dealing with a lot of crap and uh did his job and

Starting point is 00:00:41 wants to move on. Personal reasons. I mean, everything's been dragged through the court. The case is, again, I don't think there's any controversial here. Maybe I'll be curious to hear from Andrew. He's always got something to say about this. It's good you're up, buddy. Go at it. Well, I'm happy to be here. This is an interesting moment last week

Starting point is 00:01:08 um dcg slash grayscale effectively lost um emotion uh in relation to gemini and the gemini earn um kind of payback i don't know if everyone remembers because we have short memories here on crypto Twitter. But DCG was trying to keep a ton of Bitcoin. And frankly, they were trying to keep the upside that had happened with Bitcoin since the event that shut down the Gemini Earn program. And they effectively lost that motion. Whether or not this plays uh um you know has anything to do with with sun and shine um resign quote unquote resigning today don't know have no idea i do think it's stepping down i think stepping down i said resigning but i think stepping down was the term yeah yeah i i um i find it interesting that maybe three months ago, there was this PR push in the Wall Street Journal and others that Barry was stepping down and had removed himself from any management capacity at all at Grayscale, but yet buries the guy making the announcement

Starting point is 00:02:27 about the resignation of Sonnenschein and the hiring of Mintzberg this morning on Twitter. So that I find somewhat interesting as well. There's just a lot going on here. I don't want to get conspiratorial, but I've been told by people that formerly worked at the SEC and still work at the SEC that there's been a grand bargain associated with what's been happening at Grayscale over the past six to 12 months that effectively, you know, Barry was to step down, step aside, and for all intents and purposes, watch as, you know, Grayscale assets were siphoned out of the firm. We've seen that happen in droves. We've not seen them make any meaningful adjustments to their fees. Anybody with a business, you know, with a half

Starting point is 00:03:34 of a brain for business would have said that one and a half percent fee versus everybody else at 20 basis points is ridiculous. It makes no business sense whatsoever. So one would have to think, what's really going on there, right? So I don't want to go any further than really what I just said. It's just an ongoing situation. I did put up a post about five minutes ago that Mintzberg himself is very, very well known for M&A activity at both Goldman and BlackRock. And it would not surprise me if over the next three, six, 12 months, there's some sort of, you know, final, you know, some finality associated with Grayscale and what maybe the grand bargain was associated with keeping a guy like Barry out of the crosshairs of the real legal troubles that still loom

Starting point is 00:04:34 where grayscale is acquired. So I think that's a possibility. I think that's interesting. And I think the new CEO has a long history of doing deals like that. So we'll see. It's an interesting moment with a lot of back-end whispers and what-ifs. Andrew, let me ask you some questions. So bring it up today. So if I remember correctly, the the case with the i always get gemini and genesis mixed up which one's winklevoss gemini gemini gemini so the case with

Starting point is 00:05:13 um gemini creditors they paid everyone back bitcoin in kind is that correct that's correct that is correct bitcoin in kind at today's prices. Okay. And then in terms of Genesis's earned service, obviously Winkle Gemini was one of their customers, but everyone else was institutional. Is that correct? Yeah, everyone was institutional in scope. Yes, that's correct. And so when they paid off, was that like paying them the Winklevoss in kind? Did that mean that they were still trying to dollarize everyone else's claim? And that's what they lost yesterday. Is that what you're saying? I believe that's the case. Again, I'm not a lawyer and I haven't deeply reviewed, you know,

Starting point is 00:06:05 the findings, pleadings, slash whatever it is. But I saw, I believe it was Friday or maybe this weekend where there was another Gemini Earn update posted to Gemini's page. And it said that, you know, whether it's this week or there's a date certain where those those in-kind distributions were going to hit people's accounts. So so so that that process, as it relates specifically to Gemini Earn, legally has has, for all intents and purposes, run its course. The Genesis part of it, you know, we're now talking about intra-company weirdness um i i i can't i can't give you a very clear-eyed description of of where that is between dcg and genesis that that yeah because i'm not sure that would be the bit the and again sorry i haven't haven't done my homework scott um but the that would would be the bit that would be concerning

Starting point is 00:07:06 because if they had enough Bitcoin in order to pay back the in-kind, they're great. All the retail customers got made whole, and that was the best bankruptcy out of all of them. So that was a great result. But they still had billions of dollars missing. And so if they can afford to pay everybody bitcoin and whole when bitcoin went from twenty thousand dollars to where it is today

Starting point is 00:07:32 um you know essentially they're either short bitcoin which is the worst trade in to be in um and still an issue um or they're trying to dollarize everyone's claim and then they have to keep the fees high because they're trying as long as they're i i don't know whether um grayscale charges i don't think it's possible for them to to pay all of their genesis creditors back in kind i i think that i think don't don't think there's any way that's possible but the the interesting thing about that is that the fundamental principle of bankruptcy is that all creditors have to be treated equally. And so paying one back in Bitcoin in kind would be a significant advantage, which would normally be a clawback of all event if you settled without

Starting point is 00:08:24 paying all the other creditors. So there is some gaps. And sorry if I'm just bringing up stuff. One thing that we know, Barry, to have a unique ability to do, it's bankruptcy law. You know, Barry may be the best bankruptcy lawyer mind in all of crypto, potentially, you know, a top 10 type of guy across the country. I mean, that's where he flat out created his first business of scale and found himself in this position. So, you know, again, I don't know what the detail is. David is raising his hand, which I think, you know, might be of interest there. It wouldn't surprise me if

Starting point is 00:09:07 somebody he knows or he himself is a Genesis creditor. So maybe he's got some thoughts. No, neither nor. I just want to go ahead and say, Barry, I know him on and off over time. Let's not paint him into being superhuman. There's good counsel on all sides of this and certainly good angling. Certainly, if Barry, based on documents and structure that he set out before anyone kind of got wide-eyed about this, uh, or, or wise to this, you know, certainly he has, you know, an advantage from, from the beginning, um, you know, based on, on certain positioning and whatever, you know, documentation controls and the language they're in. Um, but at this point, whatever kind of chess playing that he's doing now, he's playing against some of the best chess masters there are. So I don't I wouldn't again, in terms of his current moves, I wouldn't say he's out foxing anyone.

Starting point is 00:10:20 He may have an advantage based on where things started, and he may be exploiting those, certainly. In terms of, you know, I don't have any inside information on this. You know, I'm not close enough to the situation. But in terms of stepping down, I believe it needed kind of to come to pass. This is just my own take. I think it needed to come to pass. There's really been a changing of the guard in the most high-profile crypto enterprises, for better or worse, what have you. The industry went through a very challenging time that was rife with, I don't know, fraud, criminal activities. And, you know, the regulatory system is what it is. Granted, I don't agree with it. But I'm sure there were ultimatums made, not only by

Starting point is 00:11:28 regulators, but also by other stakeholders in the businesses. And maybe even by Barry himself, saying that this is the best thing to do. We don't know what kind of controls Barry still has over the business, you know, how much autonomy is being given, you know, to the new CEO, you know, to go ahead and take somebody with, you know, with a clean slate, with a, you know, an illustrious, you know, resume, you know, high standing in finance circles. It's not, it's not the worst thing for the business in terms of what the business ends up being. I mean, it's a commoditized kind of business at the end of the day. So I don't really know what is the long term of this. I mean, at the end of the day, it seems like BlackRock won the race. The race is

Starting point is 00:12:16 over. Everybody could go ahead and try to kind of keep up. But the truth of the matter is it was going to get to this point of being commoditized. There may be some nuances around the edges in terms of what additional value Grayscale can provide. But I don't want to make – it is a big deal in terms of the story or the history of crypto. I don't know how much of a big deal it is vis-a-vis the business. Well, just a small reminder. And again, this was maybe nine months ago now when, when DCG, um, you know, put together a, Hey, this is our offer. And this is how we're going to quote, unquote, pay everyone back. A massive part of that quote unquote payback was we're going to take DCG public in 2025. And that's how we're going to pay everybody back. That is unmitigated and absolutely laughable at this point. Okay. It's just absolutely laughable. And so these moves, again,

Starting point is 00:13:27 we all have short memories because of the nature of finance and crypto. And there's new headlines, you know, every 15 minutes. But there's been a move backwards, backwards, backwards, backwards, backwards, backwards. And it's brought us to this point now where there's a new CEO that's been named of a shrinking and failing grayscale that their only move in terms of potential positive outcomes over a longer period of time looks like a significant sale based on current assets under management. Those assets under management aren't going to grow over the next year. I have a bit of a rebuttal to what you're saying, Andrew. I don't think it's such a bad business at all, firstly.

Starting point is 00:14:18 I think it's a great business. I mean, ultimately, if you look at it, it's the number one or number two Bitcoin ETF at the moment with a great track record of storing Bitcoin for many, many years without any data compromises, et cetera, et cetera. I think that the reality is that when they appointed Sonnenschein to be the CEO of the business, I was kind of shocked. I mean, I'd been following Sonnenschein for a while. I knew the guy and i don't think that he was a ceo material but i guess that to me he was a ceo that barry could you know he was a

Starting point is 00:14:55 puppet and barry could be the puppet master for someone like like sun and shine right like to be honest i've had multiple interactions with him and i I don't think that he's a CEO of a $30 billion ETF. I never felt – I always felt like this was a Barry puppet, and while Barry was sorting out his shit with everything that was going on after FTX and Genesis and all those, I just thought that Barry had a puppet CEO in. But now they are in a position where they need to make some really big moves because otherwise they're just going to bleed to death. And I guess that that's why they're taking action and Sun and Shine is stepping down now and they're getting

Starting point is 00:15:38 somebody who could maybe make some moves. And what I would imagine is that probably in the next 6 to 12 months, there'll be lots of fee reductions and they'll actually try and become really competitive in this ETF market. Well, I would, you know, sort of responding to that, I think your thoughts are well considered, Ran. I would just say that, you know, a business that is dramatically shrinking in a protracted period of time isn't necessarily a great business? I don't know if it's shrinking. I don't know if it's shrinking. Let's just quickly look at the facts. So yes, there was the initial mass withdrawal from Grayscale, but actually last week they had a net intake week. You're only considering their Bitcoin business. Now bear in mind that the one core

Starting point is 00:16:26 competence that grayscale have proven that they have is the ability to create etf type vehicles which can be converted into an etf using legal precedent right so they've got an east product they've got a like a multi a multi-token product etc etc and what they've proven is that they are they have the formula, they have the lawyers, they have the firepower to be able to force the SEC's hands to convert their products. There's no other business that I know

Starting point is 00:16:53 that can go and raise money for an ETH ETF equivalent today and then almost say, look, invest in this product of ours, which is the ETH or whatever you want to call it. And then, you know, we will be champions, like we did with Bitcoin, we will be champions invest in this product of ours which is the the et or whatever you want to call it and then you know we will be champions like we did with bitcoin we will be champions to to um uh to convert that et into an etf like i just think that like they they you know this they they pulled their etf filing last last week so um you know they're they're there's a pullback in how they're managing their business that they don't want to take on that fight, which leads me to believe that there's more going on with

Starting point is 00:17:31 regulators and conversations with the likes of Barry and their leadership than we're privy to. I just look at actions and reactions, and these feel like actions and reactions associated with conversations that, you know, Barry wants to remain a free human being. And there's adjustments here to their business model and their willingness to push the envelope. They could for all intents and purposes. You know, Nate does a really good job and has talked about for several months like theF should be approved based solely on precedence, right? But precedence is interesting, but if a regulator says, I don't care about precedence here, so denied, right? That's what's going to happen. And somebody will have to take that on. Everyone thought that Grayscale would take that on, but they're like, no, we're not going to take it on. So there are a lot of moving parts here.

Starting point is 00:18:29 But in this case, Andrew, in this case, not only Grayscale can take them to court. I mean, theoretically, BlackRock would take them doesn't have a real interest in in taking their regulator to court. But that's we're on a different playing field at this point here in the United States that that would be my position. I don't think BlackRock is going to, you know, go ahead and say, you know, let's let's let's sue the sec they don't have a history of doing that so if you if you look at so let's look at it right you've got the winklevoss bit of money that was like so there was there was approximately a three billion dollar hole that was the issue in their own business now one of the creditors was FTX. So FTX, they're not getting crypto, you know, they're getting dollarized whole, which is basically a 70% loss if you've got a crypto liability.

Starting point is 00:19:37 So you're 100, you're, oh no, the big creditors are going to get 149% whole. So let's say that wipes out a billion dollars of dollarized debt but if you've still got crypto liability so let's let's say grayscale great grayscale obviously let's assume their etf was approved which means that they're fully backed and they're they're they're one-to-one and everything was held with coinbase and there's no issues there um but did they have any contracts out against that you know that would be i guess a fraudulent

Starting point is 00:20:09 situation a bit like the ftx side because that would be custody so then you've got those two pockets of bitcoin liabilities that are paid off you've got the etf and then you've got the uh the winkelvoss side but the other big hole was 3ac and i think 3ac is paying off about 20 20 cents on the dollar correct me if anyone knows i'm wrong there um and so you've got a massive the only way you can get your creditors on your side to negotiate something is they have to take a much bigger hit because you settled with bitcoin in kind which would have been the way so those creditors are in an inter-creditor war as it were because they paid off the retail to get that liability away and then the only way you could make up that hole is if he went around trying to raise

Starting point is 00:21:05 finance trying to borrow it couldn't borrow it so the only thing that's left is equity in the group the group holds a bunch of illiquid private equity it's got foundry the mining operation right um it's got any revenue that's still being generated from grayscale um and uh i don't think there's any question that the revenue associated with um grayscale products has been the thing that has has funded the last two years of dcg's everything in operations right and And all of their legal issues, you know, that reality, you know, can't be disputed. But your question about the holes that existed associated with the Genesis bankruptcy, the intra-company loans, and those questions are really important questions. Like, where has that gone? Has there been some sort of legal, you know, backroom deal, you know, at EDNY that says, you know what, we're working with the SEC, working with the DOJ as well. And we're going to, you know what, we're just going to forget about these holes. And, but these things have to happen. You've got to do this, this, this, this, and this,

Starting point is 00:22:30 and it'll play out over a period of time. I don't know. You know, I don't know. It's some, there are times where it smells like that. But there's going to be, there's going to be parties that may not be satisfied by some of that because they're, you know, the question you're really asking is how can Gemini Earn get paid back in full and in kind? But there are other parties, but other parties have not. And so that's a, you know, that's a legal, that's a real legal question. And I don't know, I don't know the source that you can get to that would be able to appropriately or even would appropriately answer that question i don't know

Starting point is 00:23:10 yeah the only way you'd get there is if if um if it was considered a custody service and custody would get would become a debt and therefore they get precedent because it's property but it's not because they're being done for an illegal securities offering so both services were securities in which case um you know they were meant to disclose the risks and they were meant to do a registration for that security and therefore it's not custody so they've what it looks like to me is that one creditor class has been significantly favored because they were retail um over other creditor class and then significantly favored because they were retail over other creditor class. And then it's just what are those creditor classes going to do?

Starting point is 00:23:53 Yeah, interesting. I believe there are a few lawyers in the field right now. I'm looking at Joe. Joe, any thoughts? And I certainly don't mean to become some sort of mod or host in this thing. Hey, we've got Joe. No, please do. Joe and Zach came up as well.

Starting point is 00:24:12 So we'll get their thoughts on this. No, I don't have any thoughts on this one. We'll go to Zach. We didn't pay his invoice yet, Andrew. That's the issue. Zach, go ahead. We didn't pay his invoice yet, Andrew. That's the issue. Zach, go ahead. I think the real difference in these cases is the terms of service and what the retail folks thought they were signing up for.

Starting point is 00:24:40 This thing, in terms of if you were to apply legal analysis, it looks like a securities offering because of what's being done with their money. But to them, it's presented more like a bank account. And I think more sophisticated investors who were not lied to in the terms of service, you could see sort of a different result and explain the priority that way. I would simply add this as it relates to the Grayscale news of the day, right? I don't think anybody should be fooled by the fact that, oh, you know, Grayscale has had a tough run. They've had a lot of outflows. It's been a tough deal. And so Sunshine, you know, was asked to resign based on performance like that, that there's that doesn't exist. That's not real because he presided over a, you know, a sizable increase in assets under management before and took on the whole legal process of the ETF.

Starting point is 00:25:28 So it's not, hey, we saddled you with a wildly overpriced annual fee for the product and you weren't able to pull off keeping everybody in the fold. Andrew, can I ask you a question? If you were Barry and you were running a business with $ billion under management or 30 billion under management and the market became a lot more competitive is sun and shine your number one man for the job no i don't i don't think so i is your number two is your number two man for the job no i don't think so either is your number 27 man for the job no but i'd don't think so either. Because you're number 27, man, for the job.

Starting point is 00:26:14 I'd say 11 or 12, maybe. I don't know. I would add that Alex put up a post earlier today where Sonnenschein was faced with some tough questions and Peter McCormick maybe nine months or a year ago. And I think that the fact know, the fact that he remains CEO of Grayscale after that, you know, horrendous performance in the first place. And again, those were tough questions, but he should have been ready for them. He was a Barry puppet. I mean, with respect, he was a Barry puppet. He was never qualified. I remember when he got the job, I was like, is this a fucking joke? And then I just thought to myself, hold on a second. Barry's looking for someone that he can easily manipulate. He can easily tell him exactly what to do he put in he put in a sun and shine and so and he let sun and shine run the thing but now shit got real there's lots of competition

Starting point is 00:26:55 they're bleeding out they need to do something quickly they need to get a proper ceo if i was in this position i would have done this ages ago yeah Yeah. So, so it brings into question the, the articles starting with the wall street journal several months ago that says Barry is removing himself as chairman of grayscale. Was that real? Or was that PR? Why did they have to do that? Why did they have to say it?

Starting point is 00:27:19 Why did they have to paper it? Why did that have to happen? Because what you're saying is true no question a puppet no no question barry is making all these moves and he's the one that announced it this morning so what why is that happening why did they have to do a a a pr push for barry's no longer involved his hands off the wheel that that's a question that i find compelling well you know the answer you you're you're January of 23 there was an active DOJ investigation based on public reports out of the eastern district so i don't i don't really understand the question i mean you know it was it was optics

Starting point is 00:28:00 right they needed to get him out and there it's i think it's clear there's backroom discussions anybody who doesn't think there has been been with prosecutors and other enforcement are just naive. such as now the CEO, I find that interesting too. It again begs the question about what continue to be the ongoing conversations with law enforcement. It's something. It's interesting. I want to touch on three other pieces of news. One small one that's gone relatively unnoticed. I want to go to Simon on this one. So Spanish media, there's a story put out on Spanish media, El Pais, I think it's called El Pais, whatever you pronounce it.

Starting point is 00:28:48 The Venezuelan government recently announced that due to frequent power outages, as well as fraud investigation against the national oil company, PDFCA, it will close the connection between all Bitcoin mining farms in the national power system. Simon, a question that no one really talks about anymore but was the hottest debate a decade ago is how easy do you think it is for governments, if they do decide to crack down on Bitcoin, how easy it is to just cut down power to all the mining facilities around the world if they do work together, which is already hard to achieve? And is that a concern that you have? And obviously, this is a small incident in venezuela it doesn't look like other countries are following suit but we're seeing that regulatory crackdown in multiple countries the u.s being one of them could that escalate to that level oh what an interesting question so um let me make sure i understood it correctly are you saying the

Starting point is 00:29:40 a government actor cut off the electricity supply to a Bitcoin miner in Venezuela or it was a foreign actor? No, in this case, in Venezuela, it's the government, the Venezuelan government. I'm talking if governments around the world collude to kind of destroy Bitcoin, or at least try to destroy Bitcoin and cut down power to all the mining facilities around the world, then mining Bitcoin becomes a kind of an illegal hidden activity, jeopardizing the decentralization of Bitcoin. Is that a risk even worth discussing at this stage? And then quick, sorry, one more question.

Starting point is 00:30:17 So does that mean they cut off the supply for just their local countries or delivering oil to any country that's mining Bitcoin? No, no, no, just their local countries or delivering oil to any country that's mining Bitcoin? No, no, no, just their local country. This is a very small, this incident is very, very small and irrelevant, but kind of triggers the question that we debated maybe once a few months ago here on The Space, but never since.

Starting point is 00:30:37 It's a global crackdown on Bitcoin. Okay, yeah. So obviously Venezuela is one of the most, behind Iran and Russia, one of the most heavily sanctioned countries in the world. Political instability. I think that they wanted to apply to join BRICS, but the regime is not a friend of the people that control sanctions, obviously. Now, as part of many of these governments that are suffering major IMF debts, confiscation of gold from the Bank of England, geopolitical, you know, sanctioning, they tend to have really big problems

Starting point is 00:31:22 with their currencies. And so they implement capital controls that prevents people from using dollars and foreign currencies. And in those types of regimes, they tend to outlaw or try to outlaw people that want to hedge their risk from their government using Bitcoin. And so you tend to have like these mining operations that pop up, especially in a country that has massive natural resources like oil, which would then potentially lead to natural gas being able to generate electricity at a cheaper rate. And so you would, yeah, typically some of those countries would try and ban Bitcoin mining as an attack vector. And I think within an individual country with a government that wants to be hostile towards Bitcoin mining, then it's a genuine choke point. Definitely. If you can take off, if you can say that it's illegal to mine Bitcoin and then you can choke off.

Starting point is 00:32:25 But what tends to happen is that it means that it's just you've got to you've got to pay the right politician in the right place in order to bribe them to allow it to happen. This happens quite a lot within China when there was the ban, not ban, ban, not ban. But you just had to pay the right region and the right person in order to allow it. And then some of those electricities were completely free sources. So you're just dealing with a type of mafiosa type market. But to answer the question,

Starting point is 00:32:58 yeah, there is definitely an individual choke point within a country if a country wants to follow that policy. But that would just create an opportunity for another country like El Salvador to say come come over here and Ethiopia to develop and all the other countries to develop so as long as there is geopolitical competition then you know the fact that people are mining in Russia and mining in Iran and mining in China and mining in America means that you tend to get geopolitical diversification.

The Wolf Of All Streets - Grayscale CEO Resigns | Venezuela Attacks BTC Mining | Crypto Town Hall

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