How Bitcoin will fare when Genesis dumps $1.4bn in GBTC to pay creditors

How Bitcoin will fare when Genesis dumps $1.4bn in GBTC to pay creditors
Market watchers are anticipating another significant redemption from GBTC, but the market impact could be muted. Credit: CHINE NOUVELLE/SIPA/Shutterstock
  • Genesis needs to sell $1.4 billion worth of GBTC shares as part of its bankruptcy proceedings.
  • The firm wants to buy Bitcoin at the same time as it sells GBTC shares, which would mitigate the operation’s market impact.
  • Genesis still needs court approval.

Now that Grayscale’s Bitcoin Trust has been converted into an exchange-traded fund, bankrupt crypto lending company Genesis is looking to unload almost $1.4 billion of the fund’s shares to pay back its creditors.

But K33 Research’s Vetle Lund says there’s a chance the proceedings won’t impact the market.

Impact on Bitcoin

Genesis is set to sell almost 36 million GBTC shares, worth almost $1.4 billion, as part of its bankruptcy proceedings.

In theory, the move would add significant selling pressure on Bitcoin.

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But analysts at crypto research firm K33 Research pointed out in a Tuesday note that Genesis sought authorisation from the court to reimburse its creditors in Bitcoin rather than in cash.

“The value of the GBTC can only be returned in cash,” senior analyst Vetle Lund told DL News. “But per the motion, the aim is to use proceeds from sales [or] redemptions, or cash on hand in anticipation of proceeds, to purchase Bitcoin.”

What that means, Lund said: “The net effect should be balanced net buying and selling.”

In other words, Genesis may end up simultaneously buying Bitcoin while selling its GBTC shares — thus having little market impact.

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The motion has yet to be approved by the bankruptcy court, Lund said, meaning Genesis could still end up being forced to convert its GBTC position into dollars. The firm will likely receive a response to its request on February 8, K33 Research said.

“Even if approved, less transparent spot purchases compared to daily ETF flow updates may suffice to spook the market into de-risk mode,” the report warned.

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 firm filed for Chapter 11 bankruptcy protection in June.

Crypto market movers

  • Bitcoin added 0.4% since Tuesday to trade above $43,000.
  • Ethereum gained 1.2% to $2,360.

What we’re reading

Tom Carreras is a markets correspondent at DL News. Got a tip? Reach out at tcarreras@dlnews.com