GBTC Share Fire Sale? Genesis Moves to Sell Over 35 Million Shares Worth $1.4 Billion

Cryptocurrency lender Genesis Global Capital has filed a motion in New York bankruptcy court seeking approval to sell over $1.6 billion in digital asset shares, court documents revealed Friday.

The majority of shares are in Grayscale’s Bitcoin Trust (GBTC), worth around $1.4 billion at current market prices.

TLDR

• Genesis is seeking court approval to sell $1.4 billion worth of Grayscale Bitcoin Trust (GBTC) shares to repay creditors affected by its dispute with Gemini.
• Analysts predict the Genesis GBTC share sale could put downward pressure on Bitcoin’s price.
• Genesis has requested to shorten relevant deadlines so its motion to sell GBTC can be heard at a February 8 court hearing.
• As of January 30, Genesis held $1.38 billion in Bitcoin, $170 million in Ethereum, and $38 million in Ethereum Classic.
• Genesis fell into financial troubles due to liquidity issues exacerbated by the FTX collapse and exposure to failed entities like Three Arrows Capital in 2022.

Genesis has additionally requested the court shorten relevant legal deadlines so its sale motion can be heard at the next bankruptcy hearing on February 8th.

The embattled crypto lender wants to liquidate its GBTC shares to raise funds to repay creditors affected by its ongoing legal dispute with cryptocurrency exchange Gemini.

Genesis provided Gemini users the ability to earn interest on crypto deposits through Gemini’s Earn program. To backstop loans made through Earn, Genesis put up GBTC shares as collateral.

However, Gemini claims Genesis improperly seized control of collateral shares when changing the terms of their agreement last summer, prompting a lawsuit.

In total, documents show Genesis currently holds over 35 million shares of GBTC worth approximately $1.38 billion as of January 30th. It also holds 8 million shares of Grayscale’s Ethereum Trust (ETHE) valued around $165 million and nearly $38 million worth of Grayscale’s Ethereum Classic Trust (ETCG) shares.

Selling such a large GBTC position so rapidly could spark volatility in crypto markets, analysts say.

“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,”
said Pratik Kala, an analyst at DigitalX.

GBTC is an exchange-traded fund investing in Bitcoin. It converted from a more restricted trust structure to an ETF on January 11th, 2024. The new structure allows everyday investors to more easily redeem GBTC shares directly from the fund. Prior, investors could only sell GBTC at prevailing market prices on secondary exchanges, usually at a discount to Bitcoin.

Genesis has struggled financially since 2022 when several major crypto entities collapsed, including hedge fund Three Arrows Capital, to which Genesis had significant exposure. The high-profile failure of cryptocurrency exchange FTX later that year made matters worse by sparking an industry-wide liquidity crunch.

To raise cash, Genesis filed for Chapter 11 bankruptcy protection in January 2024. The company aims to reorganize operations and repay creditors over time. Separately, Genesis agreed this week to pay a $21 million fine to the SEC over the collapsed Earn program.