1. The Path of DCG's Crypto Empire

In the recent surge of Bitcoin over the past few months, Grayscale Trust, which has continuously increased its BTC holdings, is considered one of the most important supporting forces behind this trend. It appears daily in the public eye, constantly stimulating the nerves of cryptocurrency users and sparking immense interest in the market. Behind Grayscale lies an even larger crypto empire—Digital Currency Group (hereafter referred to as "DCG"), whose reach extends to nearly every corner of the crypto world.

The founder of DCG is Barry Silbert, who established the private equity trading platform SecondMarket in 2004, providing a trading platform for employees of private companies and early investors holding equity. This platform rapidly grew alongside the development of Silicon Valley tech companies like Facebook, and its equity business was acquired by the NASDAQ in 2015.

In the years prior, Barry Silbert had developed a strong interest in Bitcoin, having invested $175,000 of his personal funds in 2012 to buy Bitcoin at $10, later selling in batches when the price reached $50. The enormous profits led Barry Silbert to take more action in this market.

On one hand, Barry Silbert acted as an angel investor, investing in crypto giants like Coinbase, Bitpay, and Ripple in 2013, showcasing his keen investment insight.

On the other hand, Barry Silbert directly promoted the establishment of Grayscale, the current Bitcoin trust company, and the embryonic department of Genesis Trading, an over-the-counter trading platform for Bitcoin, retaining these businesses when SecondMarket was acquired. In 2015, Barry Silbert integrated these two major businesses with his personal investment operations to establish DCG, officially embarking on his "whale" journey in the cryptocurrency industry.

In the same year, DCG completed its first and currently known only round of financing, with investors being well-known institutions from the traditional financial market, including Mastercard, Bain Capital, and the Canadian Imperial Bank of Commerce, along with a Chinese fund—HCM Capital, a global holding company for Foxconn Group's investment and financial operations.

From the subsequent operational model, Barry Silbert aims to build DCG into a diversified group that integrates holding and investment, constructing industry-leading enterprises through self-built and acquired means, while also investing in high-quality companies in the industry, enjoying the benefits of long-term value investment. The official website indicates that the current DCG team consists of only 11 members.

Barry Silbert has also publicly stated that he hopes to make DCG the Berkshire Hathaway of the cryptocurrency field. "What I really want is flexibility; I want to create new businesses, have the ability to acquire companies, and the ability to buy coins, but any traditional fund model does not suit my aspirations," Barry Silbert said.

In the past five years, DCG's layout and achievements in the crypto market have brought it 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, and Coindesk has become the most influential blockchain media in the crypto market. Founded in 2019, Foundry has also begun to show strong capabilities in the Bitcoin mining market.

However, until September of this year, DCG's business layout still lacked a crucial element, namely the cryptocurrency exchanges, where the wealth effect of the industry is most pronounced. Although DCG has invested in well-known trading platforms like Coinbase, Kraken, BitFlyer, and eToro, it has not directly entered this field.

In September of this year, DCG announced the acquisition of the cryptocurrency exchange Luno, which has relatively low recognition in the crypto market, with only five trading currencies and a long-term daily trading volume around $10 million. Currently ranked 130th on CoinMarketCap, it is the first compliant exchange approved by the Malaysian Securities Commission. This case, along with Coindesk, reflects DCG's acquisition strategy, which is more inclined to acquire smaller companies with potential for further expansion rather than directly acquiring mature large enterprises.

As of now, DCG has directly invested in over 160 cryptocurrency and blockchain-related companies. In addition to the three giants mentioned earlier, it also includes well-known crypto companies and institutions such as BitGo, Brave, Blockstack, Blockstream, Boost VC, Circle, CoinList, Ledger, Elliptic, EtherScan, Paxos, Protocol Labs, Xapo, and Chainalysis.

2. Introduction to the Five Subsidiaries

1) Grayscale

Grayscale is currently the largest crypto asset management company in the world, with assets under management exceeding $10 billion, of which the total value of assets managed by the Bitcoin Trust (GBTC) has surpassed $8.2 billion, accounting for 2.7% of BTC's overall market value. The greatest value of the Grayscale Trust Fund lies in allowing qualified investors to enjoy the appreciation dividends of cryptocurrencies without directly purchasing, storing, and safeguarding them.

According to official information, Grayscale's series of cryptocurrency trust funds are among the few SEC-approved compliant investment tools for cryptocurrencies. The established BTC, ETH, LTC, and other cryptocurrency trust funds do not involve investors directly purchasing BTC and other cryptocurrencies through Grayscale; instead, they purchase shares of the trust fund. After investors submit subscription funds to Grayscale, Grayscale buys an equivalent amount of BTC from the spot market and then lists it publicly on the stock exchange. At the same time, Grayscale also supports investors to directly use BTC and other cryptocurrencies to subscribe for trust fund shares.

Currently, Grayscale does not support the redemption of Bitcoin shares, meaning that once investors subscribe for trust shares, they cannot exchange them back for Bitcoin; investors can only sell the Bitcoin trust shares GBTC on the US secondary market.

Grayscale primarily profits by charging management fees from users, deducting 2% annually from the amount of Bitcoin it holds, earning management fees in a coin-based manner.

2) Genesis

Genesis was established in 2013 as the first over-the-counter Bitcoin trading platform in the United States. Since then, its business has expanded to derivatives trading, cryptocurrency lending, and custody services, making it one of the largest comprehensive service providers in the cryptocurrency market. Genesis also obtained a BitLicense from the New York Department of Financial Services (DFS) in 2018, becoming the fifth company to receive this license.

According to financial reports, Genesis issued new loans worth $5.2 billion in the third quarter of 2020, more than doubling from $2.2 billion in the second quarter; the total trading volume of derivatives reached $1 billion, doubling from $400 million when the business was launched in the second quarter; and the spot trading volume was $4.5 billion, a 285% increase compared to the same period in 2019.

3) Coindesk

CoinDesk is currently one of the most influential blockchain media outlets in the industry, and DCG acquired the company in January 2016 for $500,000.

The media was established in May 2013, and its early influence primarily stemmed from its early launch of the Bitcoin Price Index, which was adopted by mainstream media such as The Wall Street Journal and the Financial Times. It has since grown into one of the most followed content platforms in the blockchain industry through numerous high-quality reports, currently reaching millions of users through its website, 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, with participation tickets priced at up to $2,000, attracting many important figures from the global blockchain ecosystem each year, and it has gained attention for the significant price increases of mainstream coins during the conference.

4) Foundry

Foundry is a subsidiary established by DCG in 2019, and DCG states that Foundry's creation primarily provides "institutional expertise, capital, and market intelligence" for cryptocurrency miners and equipment manufacturers.

According to official information, Foundry's main business is divided into three parts: the first is mining consulting services, providing clients with consulting and advisory services during the mining process and developing mining strategies; the second is equipment financing and procurement, where Foundry connects with equipment manufacturers to provide miners with financing based on equipment or cryptocurrency collateral to purchase new equipment; the third is Foundry Labs, which supports more blockchain infrastructure projects in mining and staking.

Data shows that Foundry has provided tens of millions of dollars in equipment financing to other mining organizations and has helped procure about half of the Bitcoin mining equipment delivered in North America this year. Barry Silbert has also tweeted that he believes Foundry has become the largest mining enterprise in North America.

5) Luno

Luno Exchange was established in 2013, and DCG participated in its seed round financing in 2014, completing the acquisition this September to enhance DCG's layout in the cryptocurrency exchange sector.

Luno has long focused on markets in Africa and Southeast Asia, dominating the cryptocurrency exchange markets in South Africa, Nigeria, and Malaysia, and is the first compliant exchange approved by the Malaysian Securities Commission.

At the end of 2017, Luno's trading volume was consistently ranked in the top 50 on CoinMarketCap, but due to regulatory issues, its trading volume has continued to decline, with an average daily trading volume around $10 million in recent months, ranking around 130th. According to official data, Luno currently has nearly 400 employees and a customer base of 5 million across more than 40 countries.

3. Investment Strategies and Directions

As one of the most important investors in the crypto world, Barry Silbert and his DCG's investment strategies and styles are also worth further analysis and elaboration.

According to information from DCG's official website, over the past few years, they have invested in more than 160 projects, of which 17 companies have exited through acquisition.

By regional classification, about 68% of DCG's invested companies are located in North America, 17% in Europe, and 10% in Asia, reflecting that crypto startups in Europe and America are more diverse and favored by DCG. At the same time, DCG has only invested in one company with a Chinese background, which is the Bitcoin China exchange. After this exchange was acquired by a third party in early 2018, DCG has not invested in any other companies with a clear Chinese background.

Distribution of DCG's Investment Companies by Region Source: DCG Official Website

By company type, the most invested direction for DCG is trading platforms, accounting for 18%, followed by payment solutions, network infrastructure, identity and compliance, etc. Notably, except for a few related projects like Acala, DCG has hardly invested in DeFi-related projects. Barry Silbert, who frequently speaks on Twitter, has also rarely mentioned DeFi during this year's DeFi bull market, reflecting DCG's lack of optimism about the DeFi market.

Distribution of DCG's Investment Companies by Type Source: DCG Official Website

In fact, Barry Silbert publicly stated in 2018 that there is almost no evidence to prove that blockchain has any other potential applications in the near future, except for store of value and cross-border payments. This is reflected in DCG's cryptocurrency investment strategy, where most investments are concentrated in value storage currencies, such as BTC, ZEC, ZEN, ETC, etc., especially BTC, with Barry Silbert frequently promoting BTC's value potential in various scenarios over the past few years.

"Except for cryptocurrencies like Bitcoin, ETC, and Zcash, most coins will ultimately go to zero. Most tokens have no practical use, and their differences are minimal. In the long run, I believe there will only be one digital gold, likely an anonymous coin. Additionally, there will ultimately only be one main smart contract platform," Barry Silbert stated.

Barry Silbert also mentioned that DCG does not short cryptocurrencies or engage in short-term trading.

Looking at the frequency of investments, according to a report released by DCG in 2019, there were 127 investment cases from 2016 to 2018, which means that in 2019-2020, DCG only made about 30 external investments, significantly slowing down the investment frequency.

At the same time, among the 127 investments made between 2016 and 2018, 72 were seed round financing, and 36 were Series A financing. The report also reflects that DCG's average investment in seed round projects in 2018 was $2.79 million, acquiring an average of 19% equity in the invested companies, while the average investment in Series A financing was $15.62 million, and about $30 million in Series B projects.

Although DCG's investments span most of the important companies in the cryptocurrency market, including several companies that compete with its subsidiaries, Barry Silbert stated that DCG does not hold board seats in any of its invested companies, "If these invested companies want to make decisions that they do not want DCG to know about, DCG would really be left in the dark like an outsider," he said.

Overall, DCG has developed into one of the most influential giants in the crypto world, with significant control in asset management, lending, custody, mining, trading, media, and other fields, and any of its actions can have a major impact on the industry.

According to a report released by research firm Messari on November 13, its researchers estimate that DCG's subsidiaries can generate $243 million in revenue for DCG each year. Additionally, based on DCG's quarterly updates and other public information, as well as comparisons with the average price-to-earnings ratios of other fintech companies, it is believed that DCG's current valuation exceeds $4 billion.

This figure seems lower than media reports on the valuations of crypto companies like Binance, Coinbase, and Bitmain, but it does not imply that DCG's industry position is diminished. With the large-scale entry of mainstream financial institutions and their capital, DCG, with its comprehensive layout and positioning, may demonstrate a stronger development trend.