Crypto Trader Tantra to Liquidate After 'GBTC Discount' Widens to Record

Tantra Labs, a cryptocurrency-focused trading firm that offered an interest-bearing investment product, is being wound down after reporting "performance degradation" and failing to raise fresh capital.

GGG Partners, an Atlanta-based bankruptcy trustee and debt-restructuring consultant, sent Tantra's creditors a letter Thursday stating that it had been appointed liquidation manager to wind down the company, and that it would be responsible for monetizing any assets. A copy of the letter was obtained by CoinDesk and confirmed by multiple people close to the situation.

Katie Goodman, managing partner at GGG, said she couldn't comment beyond the letter when reached by CoinDesk on her mobile phone. CoinDesk also sought comment from Tantra Labs through multiple platforms, including messages via LinkedIn to several top executives who couldn’t be reached.

The letter contained a message from Russell LaCour, identified as Tantra's CEO, in which the executive attributed the "severe degradation of the performance in its portfolio" partly to a recent widening in a closely watched crypto markets gauge known as the "GBTC discount."

"When Tantra Labs was created, the objective was to return the most competitive BTC- and ETH-denominated returns in crypto," LaCour was quoted in the letter as saying. "In the period leading to today’s decision by the company's executive board, however, the company noticed severe degradation of performance in its portfolio. This degradation, combined with other events occurring in the markets in which Tantra operates, led to the company's balance sheet being put in a precarious position."

He cited factors including "GBTC discounted to unprecedented lows," "directional portfolio performance degradation" and "interest spreads collapsing."

According to LaCour, the executive board "immediately explored a restructuring of the balance sheet, as well as other strategic options."

"The Executive Board simultaneously engaged in negotiations to raise funds with a view to potentially continuing the business but were ultimately unsuccessful in raising the necessary capital," LaCour said.

"Ultimately, after significant discussion and consideration in consultation with outside counsel and other professional advisors, the executive board determined that, in view of all the circumstances, it is in the best interest of the company to wind up operations, liquidate our balance sheet and effectuate an orderly and fair and equitable distribution of our assets."

The Grayscale Bitcoin Trust, or GBTC, is the world's largest cryptocurrency fund, and it trades as a stock. Due to a variety of factors the share price recently has been trading at a record discount to the value of the underlying bitcoin in the fund.

The discount reached a record of 28% this week. As recently as early 2021, the share price traded at a premium, but it tilted negative in February of last year and has been on a steady decline since. Grayscale has said it wants to convert the trust into an exchange-traded fund, but so far the U.S. Securities and Exchange Commission has refused to approve a physical bitcoin-backed ETF.

In the meantime, redemptions aren't allowed, so investors who don't want to sell their shares in the open market have to keep paying management fees to Grayscale. (Grayscale is a unit of Digital Currency Group, which also owns CoinDesk.)

Tantra Labs, which is focused on bitcoin, initially attracted deposits by promising $100 in BTC after signing up and 12% (later 6%) APY.

According to a post by tantra_labs on Reddit, the company had over $80 million assets under management as of October.

Tantra_Labs via Reddit

Grayscale trade

Accredited investors can buy shares in the Grayscale Bitcoin Trust directly at the net asset value (NAV) in daily private placements by depositing bitcoin or U.S. dollars. The shares can be sold in the secondary market only after a six-month lock-in period. The trust is a closed-end fund, meaning coins deposited remain locked forever.

For several reasons the GBTC shares consistently traded at a double-digit premium to the NAV until early February. As such, institutions would lock in bitcoin or U.S. dollars (USD) in return for shares priced at NAV and offload shares at a premium six months later, pocketing the spread.

Grayscale’s popularity surged at the end of 2020 when the premium on GBTC shares rose to a record-high 40% on Dec. 17. Some investors bought GBTC shares and simultaneously sold bitcoin futures, ramping up returns. Futures traded at a premium of 15% or more back then.

However, the premium flipped to a discount in last February and has steadily widened since then, leaving institutions that acquired shares at NAV a year ago in loss.

By Helene Braun, Omkar Godbole