According to Bloomberg, Genesis received approval from the court to sell its shares of Grayscale Bitcoin Trust (GBTC). In this regard, the cryptocurrency company plans to sell approximately $1.3 billion worth of shares. This development fueled fears of a potential market downturn, reminiscent of concerns after the FTX bankruptcy estate sold over $1 billion worth of GBTC.
Bloomberg: Genesis gets court approval to sell GBTC stake
Genesis Global Holdco LLC has been given permission by a bankruptcy court to begin repurchasing approximately 35 million shares of Grayscale Bitcoin Trust worth over $1.3 billion, Bloomberg reported. This is because the bankrupt cryptocurrency lending platform is preparing to compensate its customers. Judge Sean Lane said in his statement that he would approve Genesis’ request to convert the shares into Bitcoin or cash. He also stated that this process will be carried out gradually, supported by brokers.
What will be the impact on the market?
Genesis’ decision to sell a significant portion of its GBTC shares brought concerns in the market. This decision stems from Genesis’ recent financial difficulties and legal entanglements. Sam Callahan, Senior Analyst at Swan, said, “FTX bankruptcy estate has sold more than $1 billion of GBTC… Another bankruptcy estate plans to sell billions of GBTC soon.” He emphasized the concern. This statement underlined the looming specter of GBTC outflows impacting the broader Bitcoin market.
The GBTC in question comes primarily from two sources. These are: Genesis’ unsecured loan to Three Arrows Capital (3AC), which resulted in the purchase of 4.7 million GBTC shares, and 30.9 million GBTC shares used as collateral for the Gemini Earn program. The latter’s involvement sparked regulatory scrutiny. It also subsequently led to a $21 million settlement by Genesis with the SEC. This possibility of liquidation has raised alarm about potential GBTC outflows and their impact on Bitcoin’s price. But Axoni CEO Greg Schvey provides a critical perspective that changes the narrative. Emphasizing the mitigating factor of in-kind refunds, Schvey said:
The proposed Chapter-11 agreement requires Genesis to repay creditors in kind. So, Bitcoin lenders receive Bitcoin instead of USD in return. Most of the selling pressure from the GBTC sale will be absorbed by the Genesis property purchasing spot BTC.
In-kind cryptocurrency buybacks are important
This in-kind payback mechanism is crucial to understanding why fears of a market downturn are exaggerated. Here, the key issue becomes the percentage of creditors who will choose to sell their BTC after receiving it. Schvey’s views emphasize that the in-kind distribution was a strategic decision to prevent long-term BTC holders from being forced to accept gains.
This detailed context dispels initial fear mongering about Genesis’ GBTC sale. It highlights a concerted effort to mitigate negative impacts through in-kind refunds. This is a move that can balance market reactions.
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