Podcast Highlights: How Does Nic Carter View Genesis and DCG's Liquidity Issues?
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Podcast Highlights: How Does Nic Carter View Genesis and DCG's Liquidity Issues?
Nic Carter, founding partner at Castle Island Ventures, shared his framework for thinking about institutional adoption, Bitcoin's long-term outlook, proof of reserves, and more.
Navigating Web3 tides with focused insightsWritten by: Revelo Intel
Compiled by: TechFlow
In this episode of Empire Weekly Roundup, Nic Carter (co-founder and partner at Castle Island Ventures) joins hosts Jason and Santi to discuss whether Genesis and DCG can resolve their liquidity issues and avoid bankruptcy, along with expectations moving forward. Then, Nic shares his framework for institutional adoption, Bitcoin's long-term outlook, proof of reserves, and more.
Below are notes from the podcast.
Genesis and DCG
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Digital Currency Group (the parent company of Genesis) owes $575 million to Genesis Trading’s crypto lending division—an outright scandal.
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Genesis was certainly hit hard starting from the UST collapse.
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Ultimately, it comes down to whether Barry has enough capital to keep the empire running or if they’ll have to sell Grayscale’s franchise to another asset management firm.
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Genesis has short-term debt, but it appears their liquid capital has been redeployed into illiquid long-term assets, and they’re now trying to raise funds from multiple sources.
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One way to solve the GBTC discount is committing to winding down the trust within one or two years.
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Barry is one of the best entrepreneurs in this space and has a strong track record of raising capital.
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Grayscale holds its BTC via Coinbase custody, but Coinbase refuses to provide proof of reserves because it would reveal too much privacy. Coinbase doesn’t store all BTC in cold wallets—it’s far more complex.
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Coinbase is an audited public company—its credibility is as good as proof of reserves.
Bitcoin Miner Bloodbath and BTC Outlook
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One of the most overlooked yet hardest-hit areas in crypto will be Bitcoin mining.
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Bitcoin mining has been unprofitable over the past few months due to rising interest rates, higher electricity prices, and a sharp increase in hash rate, with operations barely covering interest payments.
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Smaller financing firms have begun repossessing ASICs (application-specific integrated circuits used for mining BTC) that were previously loaned out.
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Hash rate (computational power on the Bitcoin network) is arbitrary—don’t assume a linear relationship between Bitcoin’s hash rate and network security.
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Bitcoin transaction fees are at their lowest level in a decade; the trend isn’t promising, and without usage, there won’t be sufficient means to support security.
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As more people become aware of fiat currency problems, political support for BTC may grow stronger.
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Current priorities:
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1) Reform exchanges, since reserve transparency remains an issue;
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2) Find ways to make $BTC usable as collateral across different platforms, given the failure we’ve seen with wrapped BTC on FTX.
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PoS
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Attention should be paid to the implications of MEV (Maximal Extractable Value), especially regarding OFAC (Office of Foreign Assets Control) transaction censorship and excessive compliance risks under PoS.
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The main issue with PoS is that significant power lies with exchanges/custodians and large institutions, which ultimately act as intermediaries within the system.
What to Watch Now?
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Nic’s firm is gradually investing in startups with solid valuations.
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DeFi is receiving close attention, as it’s currently struggling. He favors new lending projects attempting to rebuild crypto credit from scratch in a more credible and responsible manner.
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Custodial solutions offering Web2-like authentication schemes are important.
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Overall, this year has been positive on the institutional front—Fidelity launched its retail cryptocurrency product, and BlackRock has started entering the space.
How Is Institutional Adoption Affected?
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Institutions show greater preference for spot Ethereum exposure compared to Bitcoin.
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Given the performance of Terra and Solana, institutions likely lack confidence in L1s.
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Greater emphasis will be placed on security, liquidity, and longevity.
Solana’s Future
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There is already allocation in the Solana ecosystem due to enthusiasm for its developer ecosystem and applications, with plans to continue holding.
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As investors, we’re excited when the market undervalues something.
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For the Solana ecosystem, the challenge will be leveraging its existing influence and momentum to create real value.
On Offshore Exchanges
Offshore exchanges will remain more significant than onshore ones, but after the FTX collapse, there’s now a fundamental distinction between offshore and onshore exchanges.
Proof of Reserves
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Proof of reserves without proof of liabilities is incomplete.
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Exchanges beginning to publish proof of reserves should also include attestations backed by auditors.
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ZK proofs for liabilities are promising.
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