An analysis of DCG's asset structure: how to address the $1 billion gap?

Author: Adam Cochran

Compiled by: Shenchao TechFlow

Genesis is the only major broker in the crypto space that provides a full range of services, playing a key role in enabling large institutions to acquire and manage cryptocurrency risks. Genesis is one of the most important pieces of the DCG portfolio, but today it is unclear where Genesis will go from here.

DCG is now facing a $1 billion hole; what should they do? I decided to break down their assets from the outside as much as possible.

We know that when they were sold to SoftBank in 2021, their valuation was $10 billion, and the fees for GBTC that year were around $500 million to $750 million, with assets under management of $38 billion.

This allows us to roughly understand the value of each component in the empire.

Assuming DCG's favorable terms annual fee is $500 million, and each component is valued at 8 times—this would put Grayscale's valuation at about $4 billion. Assuming Genesis's other large businesses might also be around $3 billion.

We can also speculate that their Luno buyout has a book value of at least $1 billion.

Their historical investments, I would guess, would accumulate to $200 million in cash investments, and at the time of investment, there might have been $800 million in book value, as it was during a bull market.

So I think we are looking for something like this for segmentation.

From the outside, these are rough numbers, but they allow us to gauge what their venture capital portfolio looks like.

Now we know a few things:

• Liquidity has decreased by over 70%;

• Venture capital markdowns are severe and progress is slow;

• They seem to be in a hurry;

• Advertising revenue in this space has also dropped significantly.

So, let's reassess:

• Grayscale's assets under management have declined, so revenue is more like $200 million/year, with a lower multiple, so it might be worth $2 billion.

• If you look at the changes in private equity, Luno might also drop by 50%.

If we check the largest holders of each currency they hold in liquidity (excluding BTC/ETH), we assume they are among the top 10 holders, which is about $50 million, and there might also be $50 million in ETH/BTC.

We know they hold at least $250 million in GBTC, so let's assume fees have accumulated to that amount.

We know CMC sold to Binance for $400 million during the bull market—Coindesk's traffic and added value might only be 1/10 of that, so unless someone buys it for the brand, we can cut its value down to $40 million.

And to be honest, I don't know if Foundry is making money now or if it still exists; conservatively, I will consider it to be worth $0.

These external analyses give us an overview with a valuation of $4.4 billion:

Given the current collapse of the market, this still seems optimistic; no wonder they can't raise $1 billion on this basis. So let's assume they want to prioritize saving Grayscale, Genesis, and Luno.

But they may not be able to do so because they have to deal with a book value issue of $500 million.

Due to the thin market for GBTC, ZEC, ETC, ZEN, and all other liquid positions, I would also be surprised if they get more than 75% of the book value for many of those assets; their sales would put immense selling pressure on this shaky market.

Their venture capital portfolio is so low because many of their best investments have already exited in the previous cycle—the current portfolio is somewhat lackluster.

Therefore, to raise $1 billion, they seem to have to:

• Sell some equity;

• Sell all venture capital;

• Sell all liquid funds;

• Sell Luno/Coindesk/Foundry (if it has any value).

And hope their value is high.

Maybe they get lucky and someone pays a high price, or they manage to sell part of Grayscale or Genesis to a big company like Fidelity. However, they may have to give up everything else to save themselves.

My guess is: if they cannot complete a round of financing this week, most of their assets will be sold off. If they cannot secure financing in time, they will have to consider divesting Grayscale itself.

This is an interesting risk model because we still do not know if they are in debt or financed.

But we know that if they cannot complete financing, it will have a massive impact, which is worth building a risk model around as much as possible.