3AC, DCG & Amazing Coincidences

This thread introduces the idea 3AC and DCG were maybe working together.
This thread analyzes Genesis in detail and finds likely Genesis-GBTC activites too.
  1. We are talking about securities here, with 100% certainty.
  2. Both companies file lots of documents with the SEC


The Grayscale Bitcoin Trust submits many documents to the SEC. From there we can work out the historical share counts:

Share counts in millions. 1 share = 0.001 BTC. So 1 million shares = 1 thousand BTC.
Grayscale filing extract showing DCG-affiliates own many shares.
  1. 31-Dec-2019: 13.45 million
  2. 2-Jun-2020: 16.763 million
  3. 31-Dec-2020: 31.95 million
  4. 31-Dec-2021: 34.6 million


Three Arrows Capital was very long this security. Here are the key facts:

  1. 3AC did not file a holdings report for 31-Dec-2019 so they owned less than 13.45 million shares as of that date
  2. 3AC did file for 2-Jun-2020 for 21 million shares
  3. 3AC also filed for 31-Dec-2020 39 million shares
  4. 3AC did not file for end 2021 so they were below the threshold
  1. Pledged 2 million to Genesis for a loan on 28-May-2020
  2. Pledged 2 million more to Genesis on 16-Jun-2020
  3. Pledged 13 million more to Genesis on 16-Nov-2021
  4. Pledged 6.5 million to Equities First from late 2021 to early 2022


Genesis releases quarterly reports with a lot of great detailed information. Here we aggregate out several years of their borrowing and lending:

Table assembled from reading every Genesis quarterly report and writing down the numbers. Did anyone ever do this before?
Genesis BTC lending and GBTC outstanding.
The first 3AC GBTC tweet. At least that wasn’t deleted.

USD Loans

So far we’ve talked about people borrowing BTC to create GBTC when it was at a premium. We will get back to that. But there is more here. 3AC pledged their GBTC shares for USD loans. Quite a few times. Here is a table taken from the thousand-page document:

3AC pledges of GBTC shares.
Genesis USD and USD-equivalent loans outstanding, in millions.

Clown Accounting

We are about to go through some proposed transactions. Some of them look and sound ridiculous. So to set the stage we need to give everyone an idea of the sorts of accounting standards these folks are using.

A Guess What Happened

So what happened here? Well, the guess is the following sequence of events was repeated over and over:

  1. 3AC borrows BTC from Genesis as a lender with some small amount of collateral
  2. 3AC passes this BTC to Genesis as a Authorized Participant to create GBTC shares. Genesis duly locks the BTC in the trust via Grayscale and returns shares.
  3. These shares are trading at a premium so this represents “free money” to 3AC.
  4. 3AC then pledges these shares back to Genesis for a USD loan. If the premium was large enough this loan is worth more than the BTC they borrowed at the beginning.
  1. 3AC can’t repay the USD loan
  2. 3AC can’t repay the BTC loan

Genesis’s Role

If this is right then Genesis financed this fiasco. They lent 3AC BTC. And then, effectively, lent them more USD against those very BTC. That sounds absurd. And it is.

Why Do This?

Simply put: to squeeze money from the GBTC premium. If Grayscale could restrict supply such that the trust traded at a premium then whoever could create shares with BTC got free money. They just needed to keep the trust at a premium for the 6 month lockup and sell.

Is This Right?

We do not have all the info yet. And this overall situation stinks. In the Twitter thread we linked an article about the famous “Enron African Barge” case. That was also a round of circular financing that ended very badly for many of those involved.

  1. 3AC is in liquidation. The liquidators have all the docs (such as they are). And liquidators tend to cooperate easily and effusively with regulators.
  2. Genesis is a US registered broker-dealer. Regulators can just go in and ask for the data. And, to the extent court approval is required, it will be straightforward. If these deals flowed through an offshore entity and they don’t want to talk about: ok, that’s a strategy. To quote Mark Twain “you pays your money and you takes your choice.” Hard to see offshore regulators rushing to protect 3AC now.
  3. Grayscale is a US registered securities issuer. Same as Genesis: inspecting them is trivial.
  4. 3AC traded their GBTC through TradeStation, another US broker. And TradeStation is totally arms-length: it’s owned by a Japanese financial conglomerate called Monex. They’re not going to want trouble because of this fiasco.
  5. Equities First is out money and, even though they are not a regulated business, seems to be a reasonable-sized US-based outfit. They’ll have records and again just want this problem resolved.



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