Genesis, a crypto lending firm now facing bankruptcy, has submitted a formal request to a United States Bankruptcy Court seeking permission to sell its shares in major Grayscale trusts. The assets in question span across the Grayscale Bitcoin Trust (GBTC), Grayscale Ethereum Trust (ETHE), and Grayscale Ethereum Classic Trust (ETCG), with their combined value nearing $1.6 billion. This step underscores Genesis’ urgent strategy to liquidate holdings to repay creditors amidst volatile market conditions.
Genesis’ court filings underscore the imperative nature of this sale, pointing out the volatile pricing of Bitcoin, Ethereum, and Ethereum Classic as a significant risk to the value of the assets held. With Bitcoin’s price currently at $42,814, Ethereum at $2,289, and Ethereum Classic at $25.06, the firm emphasizes the necessity to act swiftly to safeguard the estate’s value for creditor reimbursement.
Genesis Portfolio Breakdown and Market Impact
The breakdown of Genesis’ portfolio reveals that GBTC shares constitute the lion’s share, making up 87% of its total investments across the three trusts, valued at $1.38 billion. The ETHE Trust follows with a 10% stake, amounting to around $169 million, while the ETCG Trust holds about 3% of the portfolio, totaling $38 million.
Notably, the Grayscale trusts represent significant holdings in the cryptocurrency market. As of September 2023, the GBTC Trust held approximately 3.2% of all Bitcoin in circulation. Similarly, the ETHE and ETCG Trusts had significant shares of the circulating Ethereum and Ethereum Classic, respectively.
A pivotal development in Genesis’ strategy came with the U.S. Securities and Exchange Commission’s (SEC) recent approval, transforming GBTC into a spot Bitcoin ETF. This conversion, effective from January 10, now permits cash redemption of shares, a feature Genesis plans to leverage for asset liquidation. However, the firm faces challenges with the ETHE and ETCG shares, which lack a direct redemption program, requiring special approval for sale or disposal.
This liquidation plan emerges in the wake of the bankrupt cryptocurrency exchange FTX liquidating its GBTC holdings, amounting to 22 million shares valued at nearly $1 billion. Genesis, however, remains committed to maximizing returns from the sale of these assets, aiming to ensure the best possible outcome for its creditors.
The move by Genesis to liquidate such a significant portion of its assets highlights the ongoing challenges within the cryptocurrency sector, particularly for firms caught in the crosshairs of market volatility and regulatory scrutiny. As the bankruptcy proceedings continue, the outcome of this request could set precedents for asset liquidation and creditor repayment strategies in the sector.
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