Genesis’ latest request to sell more than $1 billion in Grayscale Bitcoin Trust shares has some analysts worried.
Bitcoin’s price has wobbled since the launch of 10 spot Bitcoin exchange-traded funds on January 11, with Grayscale’s flagship GBTC experiencing $5.6 billion in January.
“It is not out of the question that we could see some downside pressure on Bitcoin if the estate decides to sell its entire stake in a short period of time,” Pratik Kala, an analyst at alternative asset fund manager DigitalX, told DL News.
He noted that Grayscale’s filing stated that debtors would “have the authority to use their discretion in determining the timing for the sale or redemption.”
Genesis wants to sell its GBTC shares to repay creditors affected by its ongoing legal dispute with Gemini and the exchange’s cryptocurrency interest programme, Earn.
In a separate filing, Genesis requested that relevant deadlines should be shortened so that its motion to sell can be heard at a February 8 hearing.
As of January 30, Genesis held $1.38 billion worth of Bitcoin, $170 million in Ethereum and $38 million in Ethereum Classic, a document filed in the Southern District Court of New York on February 2 shows.
Following its conversion to a spot ETF, GBTC has captured the attention of market analysts, who are closely monitoring how its redemptions might influence cryptocurrency prices and ETF demand.
GBTC’s prior closed-end fund structure meant investors could not sell their shares directly to the fund. Instead, they had to sell them on the secondary market, typically at a discount. Things have changed since the fund’s conversion, however.
Lisa Wade, CEO of DigitalX, added that spot Bitcoin ETFs have provided “consistent daily demand” for the asset.
“One thing to be sure — when it all dries up we will see new highs in Bitcoin,” Wade told DL News.
The news of Genesis’ attempt to offload its GBTC shares and potentially trigger another Bitcoin downturn counter JPMorgan analysts’ estimates that GBTC’s outflows slowing down could ease “downward pressure on Bitcoin” as markets normalise.
Genesis, Earn and Gemini
Genesis Global Capital entered into an agreement with Gemini on August 15, 2022, allowing Gemini users to earn interest on their cryptocurrencies by lending them to Genesis.
To guarantee these loans, Genesis offered a large number of GBTC shares to Gemini as collateral. However, a dispute emerged when Gemini claimed Genesis took control of these shares after changing the agreement, which Genesis contests as unlawful and unreasonable.
Genesis fell on hard times following a liquidity crisis exacerbated by the collapse of FTX, a shift in market sentiment, and significant exposure to failed entities like Three Arrows Capital in 2022.
The FTX bankruptcy estate was found to have contributed to a significant portion of those outflows after liquidating 22 million in GBTC shares, worth close to $1 billion.
Chapter 11 allows a company to reorganise its debts and continue operations.
For example, Terraform Labs, the company behind the defunct Terra stablecoin ecosystem whose $60 billion collapse triggered a cascade of company crashes, including FTX and others, filed for Chapter 11 bankruptcy in January but says it “remains operational and intends to meet all financial obligations to both employees and vendors.”
Sebastian Sinclair is a markets correspondent for DL News. Have a tip? Contact Seb at sebastian@dlnews.com.
