Investors get Jittery Again and Genesis is the Sole Reason
The potential bankruptcy of Genesis sends Bitcoin and the entire crypto market to new lows
Days after its lending unit was forced to halt withdrawals following the collapse of crypto exchange FTX, Genesis Global Trading has mentioned bankruptcy as a possible option as it seeks new capital, citing people familiar with the situation.
According to the Wall Street Journal, which also cited sources, Genesis sought funding from Binance and Apollo Global Management, but Binance declined to invest due to potential conflicts of interest. The initial news caused bitcoin (BTC) to drop to a new two-year low of US$15,480. However, the price has fully recovered to where it was prior to the Bloomberg story, trading around US$15,913 as of this update. “We have no immediate plans to file for bankruptcy,” a Genesis representative told Bloomberg. “Our goal is to resolve the current situation amicably, without the need for bankruptcy. Genesis continues to have fruitful discussions with creditors.”
Digital Currency Group is the parent company of both Genesis and CoinDesk. The Grayscale Bitcoin Trust (GBTC) is gaining market attention after sister company Genesis Global Capital announced that its lending unit would halt customer withdrawals as a result of the fallout from Sam Bankman-FTX Fried’s crypto empire’s collapse. According to the report, the situation at Genesis has no direct impact on GBTC. Creditors would have no claim on GBTC assets even if Genesis is unable to raise liquidity for its lending book and declares bankruptcy.
Digital Currency Group (DCG) owns Grayscale Investments, which manages GBTC, as well as Genesis and CoinDesk. Analysts Gautam Chhugani and Manas Agrawal wrote, “GBTC’s trust structure protects its holders and remains ring-fenced from failures within DCG or DCG group entities.” The market is concerned that Grayscale may be “considered for strategic options in the event of a catastrophe,” according to the note. However, DCG stated that even in the worst-case scenario, it would prefer Grayscale over Genesis. According to Bernstein, Greyscale is DCG’s “flagship business and cash cow,” generating around US$300 million in fees per year.
According to the note, GBTC currently trades at a massive 45% discount to the price of the underlying bitcoin (BTC), implying that investors are trapped in an investment vehicle from which they can only exit after a six-month lock-in period and at a significant discount. GBTC is the largest bitcoin investment vehicle, with over US$10.5 billion in BTC. According to the note, DCG and its affiliates own approximately 10% of GBTC.