Digital Currency Group (DCG) reportedly used funds borrowed from its liquidity-strapped subsidiary Genesis to fund open market purchases of Grayscale Bitcoin Trust (GBTC).

A Nov. 24 report from the Financial Times revealed that DCG bought $722 million worth of GBTC since March 2021. DCG CEO Barry Silbert told the publication that some of these purchases were funded with borrowings from Genesis Trading.

According to the Financial Times, DCG declined to comment on whether the loan from Genesis had been secured by assets like GBTC itself.

The report comes after Silbert wrote to shareholders on Tuesday addressing the firm’s intercompany loans and Genesis’ liquidity situation. At the time, Silbert said that DCG has a $575 million liability to Genesis due in May 2023 and that these funds were used to “fund investment opportunities” and repurchase DCG shares.

DCG is said to have made these GBTC purchases in March 2021, when the fund was trading around $40. GBTC now trades at around $9, which is a 40% discount to Net Asset Value (NAV).

DCG told the Financial Times it had certain other offsetting positions that made these GBTC purchases “market neutral.”

Dylain LeClair, analyst at UTXO, believes that DCG’s claims that the trade was market neutral is clearly false.

“There is a way to hedge bitcoin exposure, but there was/is no effective way to hedge basis risk (the discount in GBTC widening further from NAV) in the trade,” tweeted LeClair on Thursday.

Cinneamhain Ventures Partner Adam Cochran also took to Twitter to comment on the situation.

“If BTC doesn’t rise and the discount gap doesn’t close then this is tough to payback. But, knowing this risk overhang exists makes it harder to justify owning GBTC, making it worse,” said Cochran.