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- 🧠 Exposing the biggest fraud in Bitcoin
🧠 Exposing the biggest fraud in Bitcoin
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GM - Arsen here.
Welcome back to Bitcoin Therapy.
First, happy and relaxing Sunday to 2,677 patients reading today. 👋
The Bitcoin halving, ETF rollout, US recession, and elections… it’s all coming together. 2024 will be wild.
God candle incoming.
Alright, here’s what I got for you this week:
Exposing the biggest fraud in Bitcoin
China tries to beat the US in the Bitcoin ETF race
Fidelity starts Bitcoin ETF marketing - busts Bitcoin FUD
Estimated read time: 5 minutes and 13 seconds
EXPOSING THE BIGGEST FRAUD IN BITCOIN
Scammers. Scammers everywhere. And one by one, they get what they deserve:
Do Kwon: EXPOSED
Alex Maschinsky: EXPOSED
Su Zhu and Kyle Davies: EXPOSED
But an even bigger scam happened in the last few years. And no one is talking about it.
Perpetrator: Barry Silbert (I’ll refer to him as ‘Shillbert’…just because it’s funnier that way), the CEO of Digital Currency Group (DCG).
The full story is quite long, which is why I’ll save you time and write a TLDR:
It’s 2013. Shillbert launches Grayscale, the first fund enabling investors to buy Bitcoin. Their golden goose product was called GBTC - a Bitcoin trust.
This was the de-facto quasi “Bitcoin ETF” investors bought to get Bitcoin price exposure. One negative of holding GBTC shares was that there was a mandatory 6 month lockup period when you couldn’t sell
And the demand for GBTC was higher than Snoop Dogg. This resulted in it trading above its net asset value (NAV) for most of its history. This means the fund's value exceeded its underlying assets (Bitcoin).
Quick napkin math example: if the GBTC premium is 50%, 1 share of GBTC with $10 in bitcoin would trade for $15. Capiche? Cool.
2/ Degenerate traders find an arbitrage opportunity
Because of the GBTC premium, an arbitrage opportunity emerged. And where there’s arbitrage, there will be degenerate traders exploiting it.
The arb trade worked like this:
Buy GBTC shares at NAV
Short equal amount of BTC
Hold six months until the 6 month unlock
Sell GBTC shares and profit by price increase and premium
Use the profits to close the bitcoin short (aka pay back the BTC) and keep the rest as profits
Rinse and repeat
Every self-respecting fund manager and their mother jumped on this seemingly obvious trade. There were a few players that especially liked doing this: Three Arrows Capital (3AC), Alameda, and BlockFi.
And what do these 3 have in common? They got absolutely rekt, went bankrupt, and their founders face jail time. These companies will play an essential role in exposing Barry Silbert. 👇
3/ Genesis and the conflict of interest
*genesis enters the chat*
Genesis was a crypto lending company that served both institutional and retail clients. Here’s how they made money:
Borrow Bitcoin from investors by offering them an interest rate
Lend these Bitcoin to 3AC, Alameda, and BlockFi at higher interest rates
And what did our friends over at 3AC, Alameda, and BlockFi do with this borrowed money? Yup, they aped into the GBTC arb trade.
Now, there’s nothing unethical about borrowing money and acquiring more Bitcoin.
The issue? Shillbert and DCG owned and controlled both Grayscale (GBTC) and Genesis.
Now, you don’t have to be a rocket scientist to see that there’s a clear conflict of interest here: Shillbert had a vested interest in both companies.
a) Grayscale made money via a 2% yearly fee for "managing the fund" (which was basically picking their noses and doing nothing)
b) Genesis made money via lending
And together, Grayscale and Genesis printed a lot of money. Like a lot.
Was Shillbert aware of the shenanigans?
Now, the main question is: did Barry/Grayscale know about the reckless loans Genesis made to 3AC, Alameda, and BlockFi, and how they put the money back into Grayscale?
Yup, they knew. The evidence is clear as day: Michael Sonnenshein (CEO of Grayscale) signed a loan that Genesis made to 3AC before the fund went belly up.
🚨FRAUD ALERT! 🚨
And that’s not all. The worst part is:
—> 3AC went bankrupt and defaulted on their loan
—> Genesis froze clients’ withdrawals and was later forced to go into bankruptcy too
The result? Many Genesis clients lost their funds, all while Shillbert and co’ were unethically profiting.
Barry Silbert: EXPOSED
This story is based on Vijay Boyapati’s excellent tweet thread on X. I know it was a bit longer than the usual stories, but I found it really interesting.
Let me know if you want more in-depth stories like this by replying to this email (I always reply back).
30% OF BITCOIN LOST FOREVER
Scary number, I know. Let me ask you a few questions:
Do you think your Bitcoin setup is secure enough?
Do your loved ones know how to access your Bitcoin if something happens to you?
Are you using Bitcoin without being surveilled by third parties?
If you struggle with these questions, you’re not alone. I’ve been there.
I’ve made lots of mistakes when I first discovered Bitcoin in 2017. I’ve sent BTC to the wrong addresses, overpaid in transaction fees, and sometimes didn’t back up my wallet (RIP sats).
This is because there was no one to guide me. But that’s not the case today. Meet The Bitcoin Way - your Bitcoin IT team
These Chads offer personalized, secure, and comprehensive solutions for every aspect of your Bitcoin journey (they’ve thought of everything):
Wallet & node setup
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Privacy-focused collaborative custody
Fast and reliable tech support
They’re rated 4.9/5.0 on Apollo. So yeah, they’re legit.
Schedule a free 30-minute call today 👇
CHINA IS COMING FOR BITCOIN
Psst…kid. Want some hopium?
Well, I got what you need: Hong Kong is planning to launch a Bitcoin ETF
You know how it goes: if the USA has, China wants it too (except freedom)
And Bitcoin ETF is not an exception. The Chinese want to use Hong Kong’s special status to launch a Bitcoin ETF before the US does.
China will have an exact playbook for launching an ETF, too: do precisely the opposite of what the US is doing right now.
First, they banned it, and now they’re racing to beat the US. China is like my bipolar classmate Tim from middle school. His mood swing record was 4 seconds.
Oh well. Hopefully, this puts some pressure on the US ETF. Here is what Arthur Hayes had to say about it:
But remember: don’t sell your Bitcoin to BlackRock.
FIDELITY STARTS BITCOIN ETF MARKETING
Our homies and homettes at Fidelity (a $4.5T asset manager) released a new report: "Revisiting Persistent Bitcoin Criticisms.”
In the report, they bust 9 most common Bitcoin myths.
And cuz ain’t nobody got time to read it; here are the TLDR findings from the report (narrated by Yoda because why not):
1/ Bitcoin is too volatile to be a store of value
Yes, but the price of hard-capped money, this is. Decline as bitcoin grows, volatility will. Yes, hmmm.
2/ Bitcoin has failed as a means of payment
Yes, tradeoff bitcoin has made, this is. For buying coffee bitcoin is not, for final real-time settlement it’s. Lightning network fixes this.
3/ Bitcoin is wasteful and bad for the environment
No, youngling. Bitcoin uses mostly renewable energy. Also, justified as it provides scarcity, the energy consumption is, security, and immutability. To “energy police” bitcoin don’t try. Yeesssssss.
4/ A competitor will replace Bitcoin
No dum-dum. Bitcoin, king, will be because of its network effect, community, and core properties. Bitcoin’s competitors compromise on key features. Yes, hmmm
5/ Bitcoin is not backed by anything
Backed by code and the social contract among its stakeholders, bitcoin is. The social consensus ensures scarcity, immutability, and decentralization.
Also, backed by anything either your mom is not. Herh herh herh.
6/ A bug in Bitcoin's code could render it worthless
Seen two notable bugs in its history, bitcoin has. Fixed quickly by the community, both were.
Always exist, the risk of bugs will. But low, the possibilities are because of incentives by the stakeholders. Yeesssssss.
7/ Regulations will slow Bitcoin adoption
No, good for bitcoin, clear and fair regulation is.
8/ People could lose interest
Bitcoin’s value relies on users’ subjective preferences. Growing, interest in Bitcoin is. Hmmmmmm.
9/ There are "unknown unknowns”
To all assets, this applies, youngling. Of most bitcoin risks, aware we are.
For the psychopaths who want to read the full thing, here’s the link.
Fidelity knows exactly what they’re doing: talking up Bitcoin to prepare to launch their Bitcoin ETF.
With bullish news like this, Bitcoin has the potential to grow older than Yoda himself (900 years).
THIS WEEK IN A MEME 📅
FROM THE ARCHIVE 📁
One of my all-time favorites.
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