Grayscale’s decision to withhold proof of reserve data could mean this for BTC

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  • Grayscale’s recent state­ments puts Bit­coin at risk of anoth­er crash or sub­dued performance
  • BTC drops below $16,000 for the first time in two years

The FTX crash was a wake­up call for exchanges and cryp­to com­pa­nies to adopt more trans­paren­cy. As a result, many have embraced the idea of pro­vid­ing proof of reserve. It thus, came as a sur­prise when Grayscale, one of the top cryp­to invest­ment com­pa­nies, revealed that it had no inten­tions of going down that route.


Read Bitcoin’s [BTC] price pre­dic­tion 2023–2024


Grayscale revealed that it will not be releas­ing proof of reserve infor­ma­tion in a recent report. The lat­ter addressed user inquiries regard­ing the state of their invest­ments after the lat­est mar­ket events. Grayscale revealed that it did not intend to release proof of reserve infor­ma­tion for secu­ri­ty purposes.

It did how­ev­er note that Coin­base Cus­tody Trust Com­pa­ny, LLC had cus­tody of all the dig­i­tal assets, includ­ing Bit­coin owned through Grayscale. In addi­tion, the com­pa­ny not­ed that it had laws that pre­vent­ed assets under its man­age­ment from being let out on lend­ing protocols.

The risk of investor pullout 

Proof of reserve reveals whether the under­ly­ing pro­to­col or com­pa­ny has enough assets to facil­i­tate with­drawals. Grayscale’s announce­ment meant that it was walk­ing a tight rope for refus­ing to pro­vide proof of reserve. Such a move may spoof investors, espe­cial­ly insti­tu­tion­al par­tic­i­pants that con­sti­tute the lion’s share of Grayscale’s clientele.

Fur­ther­more, Bit­coin already demon­strat­ed some price slip­page in the last 48 hours. This indi­cat­ed a return of sell pres­sure. It trad­ed at $16,220 at press time after recov­er­ing slight­ly from its brief dip below the $16,000 level.

Bitcoin price action

Source: Trad­ingView

The price action con­firmed the damp­ened investor sen­ti­ment. How­ev­er, if the same out­look pre­vails, then we might see BTC drop into the over­sold ter­ri­to­ry. In oth­er words, there was a sig­nif­i­cant prob­a­bil­i­ty of Bit­coin spend­ing some time below $16,000.

Cur­rent exchange flows revealed that the amount of Bit­coin flow­ing to exchanges was low­er than the exchange inflows. This con­firmed that there could be cur­rent­ly high­er sell pres­sure in the market.

Bitcoin exchange flows

Source: Cryp­to­Quant

In addi­tion to the low­er exchange out­flows, investors were notably exe­cut­ing few­er lever­aged posi­tions. This was con­firmed by the esti­mat­ed lever­age ratio which recent­ly dropped to four-week lows. This out­come is expect­ed because of the increased risk lev­els asso­ci­at­ed with the cur­rent mar­ket conditions.

Bitcoin estimated leverage ratio

Source: Cryp­to­Quant

How are Bitcoin whales responding to this?

The response by whales may help pro­vide some clar­i­ty regard­ing the state of the mar­ket. Address­es hold­ing over 1,000 BTC have been sell­ing for the last four weeks, con­tribut­ing to sell pres­sure. How­ev­er, the same met­ric indi­cat­ed some accu­mu­la­tion on 17 Novem­ber, after which we saw a bit of an uptick in addresses.

Bitcoin addresses with over 1,000 BTC

Source: Glassnode

The same met­ric wit­nessed some lev­el­ing out in the last two days. This indi­cat­ed that whales were wait­ing for the mar­ket to pro­vide more clar­i­ty of direction.

Bitcoin’s press time price was rel­a­tive­ly low, which meant long-term hold­ers could like­ly avoid sell­ing. The low­er the price goes, the more dif­fi­cult it will be to con­tin­ue drop­ping fur­ther as the dis­count becomes more attrac­tive to investors. Nev­er­the­less, Grayscale’s cur­rent sit­u­a­tion might con­tribute to more FUD that will like­ly sub­due BTC’s price action.



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