Bankrupt crypto lending firm Genesis Global Capital has requested permission to liquidate shares in Grayscale Bitcoin Trust (GBTC), Grayscale Ethereum Trust (ETHE) and Grayscale Ethereum Classic Trust (ETCG) in a United States Bankruptcy Court.
According to the recent court filing, Genesis highlighted the urgency of obtaining approval to sell the trust assets before potential fluctuations in the prices of the underlying assets, which are BTC, ETH, ETC, totalling approximately $1.6 billion. Genesis suggested that the aim is to maximise the funds available for distribution to creditors. Genesis noted “Debtors believe it would be beneficial to have the authority to sell and liquidate the Trust Assets to reduce any risk that fluctuations in price might have on the Debtor’s estates and to facilitate distributions to creditors.”
Across the three trusts, GBTC shares make up approximately 87% of Genesis’ total portfolio, with a value of $1.38 billion.
Meanwhile, ETHE equates to roughly 10% of its total holdings, which amount to approximately $169 million, with ETHCG comprising about 3%, totalling $38 million. According to a court filing, Genesis has requested the authority to sell and liquidate the trust assets to reduce associated volatility risks. The motion indicated that debtors are open to in-kind compensation, and cash settlement can be used where possible
The situation at Genesis Global escalated after the implosion of FTX and Alameda Research in 2022. The company tried to solve the issue with creditors outside the court. Still, a resolution was not reached, which resulted in the debtor filing for Chapter 11 bankruptcy protection in the United States in January 2023. Genesis Global and Gemini Trust Company were charged by the US Securities and Exchange Commission (SEC) for offering and selling unregistered securities. To avoid further financial implications of the lawsuit, Genesis Global agreed to settle on a $21 million fine with the US SEC.
On January 10 2024, Genesis highlighted the approval from the US SEC for a spot in the Bitcoin exchange-traded fund (ETF). The move by Genesis Global bankruptcy proceedings is a notable welcome to the crypto industry, as the distressed Gemini Earn investors have been anxiously waiting for months. The conversion of GBTC to a Bitcoin ETF now allows for the redemption of shares in cash through its redemption program. Therefore, ETH trust does not have a redemption program and needs the sponsor’s written consent to sell or dispose of shares. The crypto lending firm requested that written approval be waived. According to reports, the liquidation of associated assets held by Grayscale funds is expected to weigh heavily on the general bullish crypto outlook.
Notably, most GBTC investors liquidating the shares have not necessarily been exiting the market but have fled to other spot Bitcoin ETFs as they have low fees and higher liquidity. In addition to the sale, Genesis’ filing further detailed efforts to reclaim an additional 31,180,804 shares valued at approximately $1.2 billion. Initially, these shares were pledged to Gemini, but they await the decision from the court regarding ownership.