The Potential Impact of Genesis Selling GBTC Shares
The crypto community has been buzzing about Genesis’ plan to sell approximately 36 million shares of Grayscale Bitcoin Trust (GBTC), amounting to around $1.5 billion. This news raised concerns of a possible market crash, similar to the FTX bankruptcy estate’s sale of over $1 billion worth of GBTC. However, upon closer examination and clarifications, it appears that the situation is not as dire as initially perceived.
No Need to Worry About a FTX-Like Crash
Genesis’ decision to sell a significant portion of GBTC shares is driven by its recent financial difficulties and legal issues. The concern over potential GBTC outflows impacting the broader Bitcoin market was initially highlighted by Sam Callahan, a Senior Analyst at Swan, on Twitter. He pointed out that both FTX bankruptcy estate and Genesis were planning substantial GBTC sales.
Most of the GBTC in question comes from Genesis’ undercollateralized loan to Three Arrows Capital and its use as collateral for the Gemini Earn program. The latter’s involvement led to regulatory scrutiny and a $21 million settlement with the SEC for Genesis. Additionally, 31 million GBTC shares valued at $1.3 billion were earmarked for Gemini lenders.
In-Kind Bitcoin Redemptions Provide Stability
Despite concerns about GBTC outflows affecting Bitcoin’s market value, Greg Schvey, CEO at Axoni, provided a different perspective. He emphasized that the proposed Ch 11 settlement requires Genesis to repay creditors in kind with Bitcoin rather than USD. This means that much of the selling pressure from the sale of GBTC will be absorbed by Genesis’ purchasing of spot BTC.
The in-kind repayment mechanism is crucial in understanding why fears of a market downturn may be exaggerated. It is important to consider the percentage of creditors who will choose to sell their BTC upon receiving it. Schvey’s insights suggest that a substantial volume of lenders may not immediately sell their received Bitcoin, preventing forced recognition of gains.
Dispelling Fear with Context
This detailed context dispels the initial fear surrounding Genesis’ GBTC sale. The strategic decision to use in-kind repayments aims to prevent long-term BTC holders from being forced into recognizing gains. This move could potentially stabilize market reactions and mitigate adverse effects. Currently, BTC is trading at $49,761.
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