Author: Dongbing, Chief Researcher at Bitdeer, the article only represents his personal point of view

At present, there are three major sources of FUD in the market: 1. Miners; 2. Grayscale; 3. Binance. However, I feel that the market has over-exaggerated these three events, and the actual situation is not as pessimistic as imagined.

DCG

As the dispute between Gemini and DCG intensified, DCG seemed to be in a precarious situation again, and the market began to worry about the liquidation of Grayscale’s property, but this worry is actually a bit unfounded.

You must know that Grayscale itself operates trust products. Under the Anglo-American legal system, a trust is an extremely special existence, and its ownership is highly isolated from the settlor and administrator. Even if the settlor goes bankrupt, the entrusted trust assets will not be affected. Similarly, if there is a problem with the manager of the trust product, only the manager needs to be replaced, and the survival of the trust product itself will not be affected. What’s more, it’s not Grayscale that is in trouble now, but Grayscale’s parent company DCG, so the impact on the trust products managed by Grayscale will be even smaller.

I think that the dispute between Gemini and DCG itself is still a legal issue, that is, what kind of obligations does DCG have to Genesis? Since the legal details of DCG’s loan agreement with Genesis are unclear, it is too early to conclude that the Genesis crisis will eventually trigger DCG’s bankruptcy. After all, DCG still holds high-quality assets like Grayscale. Even at the current currency price, Grayscale’s annual revenue is more than 200 million US dollars. In the long run, DCG’s repayment of Genesis’ debt is not a problem. Gemini should also be aware that Genesis’s debt problem can actually be solved by reorganizing and extending the debt. The reason why DCG is now forced to repay the debt immediately, I guess its ultimate goal may be to obtain DCG’s equity or even control. Of course, DCG does not want Gemini to do what it wants, and the dispute between the two parties may need to be resolved through litigation. But the essence of this dispute is still a business, and the parties should not get to the point where the only valuable golden hen is liquidated.

Binance

The news that the U.S. Department of Justice is eyeing Binance has been circulating in the market for a long time. Judging from the recent leaked information, the U.S. Department of Justice has indeed been investigating Binance’s money laundering issue, but there are still differences within the Department of Justice regarding whether to file criminal charges, indirectly indicating that the evidence collected so far may not be sufficient to convict. In this case, even if the U.S. Department of Justice files a lawsuit, the final result is likely to be resolved through an out-of-court settlement similar to the Bitfinex and BitMEX case. The nature of the allegations against Binance determines that this will not be an FTX-style case, because the current allegations do not directly point to those core businesses of Binance, such as BNB and BUSD. In the future, once Binance is sued, it will definitely cause extreme panic in the market at the beginning, but when the market realizes that Binance will not face the end of FTX’s destruction, it may instead contribute to profits made.

Miners

Let’s first look at the possible miner capitulation problem. Analysts at VanEck recently predicted that the imminent wave of miner bankruptcies will drop the price of BTC to the $10,000–12,000 range, but I have reservations about this. The miner sell-off is already well underway and may be nearing its end.

Regarding this problem, we must first clarify who is selling. Judging from the information publicly disclosed by the listed mining companies, the selling pressure on BTC among the ten listed mining companies mainly came from four companies: Core Scientific, Bitfarms, CleanSpark, and Argo, among which Core Scientific accounted for half of the selling volume. Why are these companies selling? The answer is that the debt structure of these companies is not healthy. I studied the financial statements of all mining companies as of Q1 last summer. At that time, according to my very primitive analysis method, the above four mining companies plus Stronghold constituted the most dangerous one. The common problems of these companies are: 1. The total debt amount is high; 2. The borrowing interest is high; 3. The ratio of short-term debt is high. In hindsight, these companies have indeed fallen into a crisis of bankruptcy at the end of year, and have sold most of the BTC in their hands along with the deleveraging process in the past six months.

At present, the remaining BTC reserves of mining companies are mainly concentrated in Marathon, Hut8, Riot, and Hive while Marathon and Hut8 have the largest reserves. Marathon and Hut8 sold few coins in 2022. When I analyzed last summer, I also found that the leverage of these companies was relatively low, and the risks were controllable, and now it seems that this is indeed the case. I feel that even if the BTC price goes down, it should not trigger a large-scale sell-off by these diamond hand mining companies.

Generally speaking, the current situation is that mining companies with high leverage and easy to surrender have already dumped all their coins; for the remaining companies, it is not that easy to force them to sell all their coins. With the deleveraging process in the past six months, the peak of selling pressure of mining companies may have passed.

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