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Crypto Lender Genesis Could Dump $1.6 Billion in Bitcoin, Ethereum: Do Bankrupt Firms Pose Price Problems?

Last Updated February 5, 2024 3:17 PM
Teuta Franjkovic
Last Updated February 5, 2024 3:17 PM

Key Takeaways

  • Facing bankruptcy Genesis Global Capital has made moves to sell massive crypto holdings.
  • The sale includes foundational collateral for Gemini’s Earn program, with ownership in GBTC under legal fire.
  • The move aims to increase liquidity and ensure creditors get paid, highlighting Genesis’ struggle to stay afloat.

In a recent development within the U.S. Bankruptcy Court for the Southern District of New York, Genesis Global Capital, a bankrupt crypto lending firm, has proposed a motion  to authorize the sale of trust assets valued at approximately $1.6 billion.

The decision to potentially convert these substantial investments into more liquid assets is viewed as a strategic maneuver to enhance financial stability in these uncertain times.

Selling $1.6 Bn in Trust Assets Amid Bankruptcy Proceedings

As detailed in the court documents , the assets, held by Genesis—a branch of the Digital Currency Group—comprise significant stakes in various trusts: Grayscale Bitcoin Trust shares valued around $1.4 billion, Grayscale Ethereum Trust shares worth approximately $165 million, and Grayscale Ethereum Classic Trust shares estimated at about $38 million.

In its recent court filing, Genesis Global Capital disclosed its possession of a substantial quantity of GBTC shares—units directly linked to Bitcoin’s value, offering investors a regulated avenue to engage with the cryptocurrency’s market fluctuations.

The urgency of their situation is underscored by a parallel request  for an accelerated hearing, aiming to align the proceedings with the court’s session on February 8th.

Genesis Global Capital did not immediately respond to a request for comment.

Genesis Pursues Sale of Foundational Collateral

The GBTC shares in question are not just significant in volume; they represent the foundational collateral of Gemini’s Earn program and include assets acquired during the downfall of Three Arrows Capital.

Adding to the complexity is the claim over an additional 31.2 million GBTC shares, worth an estimated $1.2 billion. These shares, pledged to Gemini, are now at the heart of a legal dispute regarding their true ownership.

In response, Gemini has acknowledged the significance of this move, especially following the recent nod for GBTC as an exchange-traded product. The company views the motion as a crucial step forward amidst the prevailing market challenges.

Big Bitcoin Sell-Off: How It Could Rock the Crypto Market

Genesis Global Capital’s intention to offload a significant volume of GBTC shares, representing roughly 3.2% of Bitcoin’s entire circulating supply , is poised to leave a substantial footprint on the overall cryptocurrency market.

In the short term, expect to see increased selling pressure pushing Bitcoin prices down. With more GBTC shares flooding the market, there will be more sellers than buyers, potentially triggering a temporary price drop and heightened volatility. Additionally, depending on how investors react, this event could impact overall market sentiment towards Bitcoin and other cryptocurrencies, potentially leading to fear and uncertainty.

The long-term effects are also worth considering. This sale could reduce the premium that GBTC shares trade at compared to the underlying Bitcoin price, as the increased liquidity diminishes the convenience premium attached to these trusts. Furthermore, it could create an opportunity for other Bitcoin investment vehicles like ETFs to gain market share. Finally, such a large-scale sale might draw further regulatory scrutiny to the crypto market, raising concerns about manipulation and systemic risks.

FTX’s Bankruptcy Estate Linked to Major Sell-off

FTX’s insolvency assets were also closely tied to a significant selloff in the Grayscale Bitcoin Trust (GBTC), resulting in the disposal of 22 million shares.

Matthew Dixon, CEO of Evai, recently revealed  this development, and it had a profound effect on the fund. GBTC, which had operated as a less appealing closed-end fund for ten years before transforming into an ETF, had accumulated nearly $30 billion in assets by the time the SEC approved its conversion and the introduction of new Bitcoin ETFs.

Unlike GBTC, which has witnessed substantial outflows amounting to billions of dollars, newly introduced spot Bitcoin ETFs from firms such as BlackRock and Fidelity have seen substantial inflows.

The data suggests that FTX’s sale of its entire GBTC holding , which consisted of 22 million shares valued at nearly $1 billion, had a significant impact on the outflows from GBTC.

Unloading Ether, and Ethereum Classic to Pay Debts

Beyond Bitcoin, the liquidation blueprint encompasses holdings tied to Ether (ETH) and Ethereum Classic (ETC). This comprehensive approach underlines Genesis’ concerted effort to bolster liquidity, a strategy primarily aimed at optimizing asset fluidity and ensuring effective compensation for its creditors.

Additionally, the lending institution is indebted to the tune of over $3.5 billion to its 50 largest creditors , a list that notably features major players such as trading powerhouse Cumberland, Mirana, MoonAlpha Finance, and VanEck’s New Finance Income Fund.

Whether this event becomes a major market mover or a blip on the radar will depend on various factors like overall market conditions, investor behavior, and the chosen sales strategy. Regardless, it’s a crucial development worth watching closely for its potential impact on the future of Bitcoin and the broader cryptocurrency landscape.

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