Three Arrows Capital and the war against Bitcoin

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The protracted collapse of Three Arrows Capital (3AC) is being treated as a sign of great sickness within the digital asset industry—and it should be. As spectacular as the unfolding of that event has been, it has obscured a scandal within a scandal—one which implicates the Digital Currency Group (DGC) and the vast network of business interests it has aligned against the success of Bitcoin.

DCG is a digital asset-focused venture capital group founded by Barry Silbert in 2015. If you haven’t heard of them, you’ve certainly heard of their interests: the company has early stakes in Shapeshift, Bitpay, Blockstream, Coinbase (NASDAQ: COIN), Circle, Ripple, Lightning Labs and too many more to list here. Its investments extend beyond tech projects and into ‘crypto’ media, with DCG also owning CoinDesk.

The DCG portfolio is managed by Grayscale Investments and Genesis trading, both creations of Silbert. Grayscale’s name is well known because of the notorious Grayscale Bitcoin Trust (GBTC) it created; effectively, GBTC is a digital asset investment product which in theory allows investors to gain exposure to digital assets via a security (GBTC) without having to buy the underlying assets. Where GBTC trades at a discount to its net asset value (NAV), it creates an arbitrage opportunity to purchase exposure to BTC for less than if you bought the asset outright.

That so many of the industry’s biggest names are rooted in DCG is curious, because DCG itself is in large part funded by legacy payment providers and old money: Mastercard (NASDAQ: MA), Bain Capital, Transamerica Ventures, CME Ventures and FirstMark Capital. Given that the industry spawned from a famous white paper which envisioned a revolutionary system of trustless electronic cash, DCG’s stated mission would seem at odds with those of its financiers. 

The scheme

Something else is at odds with DCG’s claimed mission to foster the digital asset industry, though. Financial blogger DataFinnovation, using documents filed in 3AC’s bankruptcy proceedings, unearthed a potential scheme between DCG and 3AC to exploit the varying price of GBTC—a scheme which, if true, directly led to 3AC’s collapse (and the collapse of anyone with enough exposure to 3AC, such as Voyager Digital).

The blogger is careful not to draw any hasty conclusions. He does, however, present enough pieces to make an educated guess at what 3AC and DCG were up to.

3AC would borrow BTC from Genesis, which it then passes back to Genesis to create GBTC shares. That BTC is locked into the Trust by Grayscale, which sends the GBTC to 3AC. It used these new GBTC shares as collateral to take USD loans from Genesis—loans which, if the GBTC shares continued to trade at a premium to NAV, would be worth more than the BTC that they initially borrowed. If the value of GBTC had slipped below NAV, then 3AC is doubly screwed—which is exactly what happened when LUNA crashed and dragged the rest of the market—GBTC included—with it.

DCG, presumably, rakes in money of the fees associated with these trades.

If it is how it looks, the scheme is strangely brazen and reckless. There are more eyes on the digital asset industry than ever before, and with the trial of breadcrumbs left by public SEC filings it was all but guaranteed to be exposed. However, in the light of DCG’s origin in legacy industry and concerted efforts to prevent the project described in the white paper from being realized, the recklessness is not such a surprise.

After all, what could be further from Satoshi’s vision for useable, peer-to-peer electronic cash than the kind of circular, highly leveraged gambling that 3AC was doing with GBTC?


This scheme speaks to a particular philosophy subscribed to by Silbert, DCG and its broad and carefully cultivated network. It’s a philosophy of exploiting the nascent industry for personal gain rather than expending effort in doing what’s necessary for it to see mainstream (read: regulatory) acceptance.

More than that, this philosophy compels these companies to attack those who would prove that Bitcoin was designed to deliver fast, cheap transactions at scale within the boundaries of the law. If Bitcoin can do all of those things, then not only is DCG not necessary, neither are its benefactors—the Mastercards of the world. Therefore, BSV—the only implementation of the Bitcoin described in the white paper—and Craig Wright are public enemies #1 and #2.

Take the DGC-backed Blockstream as an example. Blockstream was founded by Adam Back as a blockchain technology company. But Blockstream is not about blockchain or even Bitcoin – quite the opposite. In Back’s own words (confirmed by him), Blockstream’s mission is to “sell sidechains to enterprises, charging a fixed monthly fee, taking the transaction fees and even selling hardware.”

Sidechains are unnecessary and have been since Bitcoin was first introduced to the world. Blockstream’s flagship Liquid sidechain is the best example of this: according to Blockstream’s sales pitch for Liquid, it is the ‘fix’ for what it calls Bitcoin’s ‘high latency’ and ‘limited volume’ capability.

That Blockstream would be opposed to Craig Wright and BSV specifically makes sense. Their business depends on being able to sell a fix for a problem that doesn’t exist (and has never existed within Bitcoin). Bitcoin was always designed to scale, as has been proven time and again by BSV. And in contrast to those pushing the narrative that it doesn’t scale, BSV is designed and built to operate within the law rather than circumvent it.

To see just how much of an existential threat a pro-law and pro-regulation Bitcoin poses to this network, take note of how many of them have already been subject to law enforcement action.

DCG’s founder and CEO, Barry Silbert, was the subject of SEC action in 2016 for using his name to promote and manipulate scam coin BIT.

Shapeshift, in which Silbert and DCG were early investors, is run by Erik Voorhees, who in many ways is the embodiment of this particular cartel’s outlook. For example, in 2018, a Wall Street Journal investigation into $88.6 million worth of illicit funds found that $9 million went to Shapeshift. The problem of black money being funnelled through legitimate or quasi-legitimate exchanges is so well-known that it is beyond denial, but Voorhees came out strongly against the report. To Voorhees, highlighting this flow of illicit funds is an ‘anti-crypto, pro-bank surveillance agenda’. 

Or look at the Liquid Federation, the group of digital asset companies hand-picked by Blockstream to validate their sidechain’s transactions. For this, Blockstream picked such upstanding citizens as BitMEX (whose founders pleaded guilty to facilitating money laundering earlier this year) and Bitfinex (whose role in facilitating Tether’s ongoing fraud caused it to be banned from doing business in New York).

Shapeshift and Coinbase both colluded to delist BSV more or less simultaneously and encouraged other exchanges to do the same. Both Binance and Kraken were also involved in the coordinated delisting attack against BSV. Coinbase and Blockstream are both on the board of the Jack Dorsey-led Crypto Open Patent Alliance, which has been proven to be nothing more than a vehicle with which to sue Dr. Craig Wright, author of the Bitcoin white paper.

So, this existential threat being what it is, it also shouldn’t be a surprise that the platforms that DCG’s money founded have done everything possible to cause BSV to fail. Nor should it be a surprise that DCG would be involved in the kind of wash-scheme alleged by DataFinnovation: where there is opposition to Dr. Wright and BSV, it can be all but guaranteed to result from a desire to keep the law out of the industry and away from schemes of personal enrichment.

Watch: The BSV Global Blockchain Convention panel, Law & Order: Regulatory Compliance for Blockchain & Digital Assets

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups from BitMEX to BinanceBitcoin.comBlockstreamShapeShiftCoinbaseRipple
EthereumFTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.

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