As the most important behind-the-scenes participant in the crypto world, DCG is not only the direct controller of Grayscale Trust, but also Genesis, one of the largest cryptocurrency over-the-counter trading and lending platforms, the famous blockchain media Coindesk, the emerging mining service provider Foundry, and trading Luno’s parent company has directly invested in well-known crypto companies and institutions such as Bitpay, Circle, CoinList, Coinbase, Ledger, EtherScan, Paxos, Protocol labs, Xapo, etc.
At the same time, relevant information from DCG also reflects that the investment frequency of the institution has slowed down significantly in the past two years. At the same time, it rarely invests in DeFi projects, does not short cryptocurrency or short-term currency speculation, and does not occupy a director seat in the invested company. It further highlights the unique investment style of DCG and its founder Barry Silbert.
01
DCG’s road to crypto empire
In the recent months of Bitcoin’s rising market, the Gray Trust, which has continuously increased its holdings of BTC, is considered to be one of the most important supporting forces of the market. It appears in the public eye every day to continuously stimulate the nerves of cryptocurrency users and also triggers The market has huge interest in it. Behind the gray scale, there is actually a larger crypto empire, Digital Currency Group (hereinafter abbreviated as “DCG”), whose tentacles extend to almost every corner of the crypto world.
The founder of DCG is Barry Silbert. He founded the private equity trading platform SecondMarket in 2004 to provide a trading platform for the shares held by employees of unlisted companies and early investors. Since then, it has grown rapidly with the development of Silicon Valley technology companies such as Facebook. Its equity business was acquired by the Nasdaq Stock Exchange in 2015.
In the previous few years, Barry Silbert had already developed a strong interest in Bitcoin. In 12 years, he took out 175,000 US dollars of personal funds, and then bought a large amount of Bitcoin at a price of 10 US dollars, and when the price reached 50 US dollars. The massive sale and huge profits made Barry Silbert decide to take more action on the market.
On the one hand, as an angel investor, Barry Silbert invested in current crypto giants such as Coinbase, Bitpay, and Ripple in 13 years, initially showing a good investment vision.
On the other hand, Barry Silbert directly promoted SecondMarket to establish the prototype unit of Grayscale, a bitcoin trust company, and Genesis Trading, a bitcoin OTC trading platform, and retained the aforementioned business when SecondMarket was acquired. In 15 years, Barry Silbert integrated these two businesses with his personal investment business to form DCG, which officially opened his own “whale” road in the cryptocurrency industry.
In the same year, DCG also completed the first and only round of financing known so far. Investors are well-known institutions in the traditional financial market, including MasterCard, Bain Capital, Canadian Imperial Bank of Commerce, etc., including a Chinese fund— —HCM Capital, the global holding company of Foxconn Group for investment and financial business.
From the point of view of the business model since then, Barry Silbert tried to build DCG into a diversified group integrating holdings and investment. On the one hand, he built a leading company in the industry through self-construction and acquisition, and on the other hand, he lays out high-quality industry through investment. Enterprises enjoy the benefits of long-term value investment. The official website shows that there are currently only 11 DCG team members.
Barry Silbert also publicly stated that he hopes to build DCG into Berkshire Hathaway in the cryptocurrency field. “What I really want is flexibility. I want to open new businesses, have the ability to acquire companies, and have the ability to buy coins, but any traditional fund model is not suitable for my desire.” Barry Silbert said.
In the past 5 years, the layout and achievements of DCG’s encryption market have brought it closer and closer to this goal. Grayscale has become the largest asset management company in the crypto market. Genesis has become one of the largest over-the-counter trading, lending and custody platforms in the crypto market. Coindesk has become the most influential blockchain media in the crypto market. Foundry established in 19 The mining market has also begun to show great strength.
However, until September this year, DCG’s business layout still lacked a very critical link, that is, the cryptocurrency exchange with the most significant wealth effect in this industry. Although DCG has invested in well-known trading platforms such as Coinbase, Kraken, BitFlyer, and eToro, Has not been directly involved in this field.
In September of this year, DGC announced the acquisition of Luno, a cryptocurrency exchange, which has a relatively low reputation in the crypto market, with only 5 trading currencies and a long-term daily trading volume of around 10 million U.S. dollars. It is currently ranked 130th among non-small accounts. , But the first compliant exchange approved by the Securities Commission of Malaysia. This case and Coindesk also reflect DGC’s acquisition strategy, that is, it is more willing to acquire potential small companies for further development, rather than directly acquire mature large companies.
Up to now, DGC has also directly invested in more than 160 cryptocurrency and blockchain-related companies. In addition to the three giants mentioned above, it also includes BitGo, Brave, Blockstack, Blockstream, Boost VC, Circle, CoinList, Ledger, Elliptic, EtherScan, Well-known encryption companies and institutions such as Paxos, Protocol labs, Xapo, Chainalysis, etc.
02
Introduction of five major subsidiaries
1) Grayscale
Grayscale is currently the world’s largest crypto asset management company, with a current asset management scale of more than 10 billion U.S. dollars, of which the total value of assets managed by Bitcoin Trust (GBTC) has now exceeded 8.2 billion U.S. dollars, accounting for 2.7% of the overall BTC market value. The greatest value of the Grayscale Trust Fund is that it enables qualified investors to enjoy the value-added bonus of cryptocurrencies without directly purchasing, storing and custody of cryptocurrencies.
According to official information, Grayscale’s series of cryptocurrency trust funds are one of the few cryptocurrency compliant investment tools approved by the SEC. The cryptocurrency trust funds established by it such as BTC, ETH, LTC, etc. are not directly purchased by investors through Grayscale. Encrypted currency, instead of buying shares of its trust fund, after investors submit subscription funds to Grayscale, Grayscale buys the same amount of BTC from the spot market, and then publicly lists it on the stock exchange. At the same time, Grayscale also supports investors to directly use BTC and other cryptocurrency spot to subscribe for trust fund shares.
Currently Grayscale does not support Bitcoin share redemption, that is, once an investor subscribes for a trust share, the share cannot be exchanged for bitcoin, and investors can only sell the Bitcoin trust share GBTC in the secondary market of US stocks.
Grayscale mainly obtains profits by charging user management fees, deducting 2% from the number of bitcoins it holds every year, and earning management fees through currency-based methods.
2) Genesis
Genesis was first established in 2013 and is the first Bitcoin OTC platform in the United States. Since then, the business has expanded to derivatives trading, cryptocurrency lending and custody, and is currently one of the largest integrated service providers in the cryptocurrency market. Genesis also obtained the BitLicense license issued by the New York Department of Financial Services (DFS) in 2018, and is the fifth company to obtain the license.
According to the financial report, Genesis issued new loans worth US$5.2 billion in the third quarter of 2020, more than double the US$2.2 billion in the second quarter; the total amount of derivatives transactions reached US$1 billion, compared to when the business was launched in the second quarter. The $400 million transaction volume doubled; the spot transaction volume was $4.5 billion, an increase of 285% over the same period in 2019.
3) Coindesk
CoinDesk is one of the most influential blockchain media in the current blockchain industry. DCG acquired the company for $500,000 in January 2016.
The media was established in May 2013. Its early influence mainly came from its earliest Bitcoin price index, which was adopted by mainstream media such as the Wall Street Journal and the Financial Times. Since then, it has grown into One of the most watched content platforms in the blockchain industry, currently covering millions of users through websites, social media, newsletters, podcasts, research, and live events.
At the same time, the annual consensus summit hosted by CoinDesk has become the most influential blockchain event in the industry. Ticket prices for participation are as high as US$2,000. Every year there are a large number of important people in the blockchain ecosystem from all over the world. The rise of mainstream currencies during the conference attracted much attention.
4) Foundry
Foundry is a subsidiary established by DCG in 19 years. DCG said that Foundry was founded mainly
Provide “institutional expertise, capital and market intelligence” to cryptocurrency miners and equipment manufacturers.
According to official information, Foundry’s main business is divided into three categories. The first is mining consulting services, which provide customers with consulting and advisory services in the mining process, and formulate mining strategies; the second equipment financing and procurement, Foundry and Equipment manufacturers get in touch to provide miners with equipment or cryptocurrency mortgage-based financing to purchase new equipment; the third is Foundry Labs, which supports mining and pledge of more blockchain infrastructure projects.
The data shows that Foundry has provided tens of millions of dollars in equipment financing to other mining organizations and helped purchase about half of the bitcoin mining equipment delivered in North America this year. Barry Silbert also tweeted that he believes Foundry has become the largest mining company in North America.
5) Luno
Luno Exchange was established in 13 years. DCG participated in its seed round of financing in 2014 and completed the acquisition in September this year to improve DCG’s layout in the crypto asset exchange sector.
Luno has long been mainly in Africa and Southeast Asia. It is the dominant cryptocurrency exchange in South Africa, Nigeria, Malaysia and other markets, and it is the first compliant exchange approved by the Malaysian Securities Commission.
At the end of 2017, Luno’s trading volume had long been in the top 50 non-small players, but since then, due to regulatory issues, the trading volume has continued to decline. In recent months, the average daily trading volume has been around US$10 million, ranking around 130. According to official data, Luno currently has nearly 400 employees and a customer base of 5 million in more than 40 countries.
03
Investment strategy and direction
As one of the most important investors in the crypto world, the investment strategy and style of Barry Silbert and his DCG are also worthy of further analysis and elaboration.
According to information on the DCG official website, a total of more than 160 projects have been invested in the past few years, of which 17 companies have already exited through acquisitions.
According to the regional classification, about 68% of DCG investment companies are located in North America, 17% are located in Europe, and 10% are located in Asia, reflecting that encryption startups in Europe and the United States are more diverse and favored by DCG. At the same time, DCG has only invested in one company with a Chinese background in the past, that is, the Bitcoin China Exchange. After the exchange was acquired by a third party in early 18th, DCG has never invested in other companies with a Chinese background.
Classified by business type, the most important direction for DCG investment companies is trading platforms, with a proportion of 18%, followed by payment solutions, network infrastructure, identity and compliance, etc. It is worth noting that DCG has hardly invested in DeFi-related projects except for some related projects such as Acala. Barry Silbert, who frequently speaks on Twitter, also rarely mentioned DeFi during this year’s DeFi bull market, reflecting the fact that DCG has not invested in the DeFi market. Not optimistic.
In fact, Barry Silbert publicly stated in 18 years that apart from stored-value tools and cross-border payments, there is almost no evidence to prove that the blockchain has any other application possibilities in the near future. This is reflected in DCG’s cryptocurrency investment strategy. Most of the investment is concentrated in value storage currencies, such as BTC, ZEC, ZEN, ETC, etc., especially BTC. Barry Silbert has frequently used BTC’s value potential in various scenarios in recent years. Speak to create momentum.
“Except for cryptocurrencies such as Bitcoin, ETC and Zcash, most coins will eventually go to zero. Most of the tokens have no practical use, and the difference between them is not big. In the long run, I think there will only be one type of digital gold , It is likely to be an anonymous currency. In addition, in the end, only one major smart contract platform can be left.” Barry Silbert said.
Barry Silbert also said that DCG does not short cryptocurrencies or short-term speculation.
From the perspective of investment frequency, according to the report released by DCG in 19, 127 investment cases occurred in 2016-2018, which means that DCG only invested more than 30 overseas in 19-20, and the investment frequency slowed down sharply. .
At the same time, of the 127 investments from 16 to 18 years, 72 investments were seed round financing, and 36 investments were round A financing. The report also reflects data including that DCG participated in seed round projects in 18 years with an average investment of 2.79 million U.S. dollars and acquired an average of 19% of the invested companies. The average investment in round A financing involved was 15.62 million U.S. dollars and the average investment in B round projects was 3,000. About ten thousand dollars.
Although DCG’s investment covers most of the important companies in the cryptocurrency market, as well as many companies that compete with its subsidiaries’ businesses, it may be out of suspicion. Barry Silbert stated that DCG does not have directors in the companies it invests in. Seat, “If these invested companies want to make decisions that do not want DCG to know, DCG will really be kept in the dark like an outsider.” He said.
In general, DCG has developed into one of the most influential giants in the crypto world. It has tremendous control in the fields of crypto asset management, lending, custody, mining, trading, and media. Any action it takes will affect the industry. have a huge impact.
According to a report issued by the research institution Messari on November 13, its researchers estimate that DCG subsidiaries can generate US$243 million in revenue for DCG each year. At the same time, based on DCG’s quarterly updated data and other public information, as well as comparisons with other financial technology companies The average price-to-earnings ratio believes that DCG’s current valuation exceeds $4 billion.
This data seems to be lower than media reports on the valuation of crypto companies such as Binance, Coinbase, and Bitmain, but it does not mean that DGC’s industry status is inferior. With the large-scale entry of mainstream financial institutions and their funds, DGC With its comprehensive layout and card slots, it may show a stronger development trend.
