Bitcoin briefly fell to its lowest level in two years on Monday after Bloomberg News reported that Genesis, the digital asset broker and lender, told investors it could be forced into bankruptcy if its current fundraising efforts fail.
The price of bitcoin BTCUSD,
fell to $15,615 on Monday after Bloomberg released its report, its lowest level since November 2020, according to CoinDesk.
A Genesis representative downplayed the Bloomberg report in a statement shared with MarketWatch, which said the company continued to have “constructive” conversations with its creditors.
“We do not intend to file for bankruptcy any time soon. Our goal is to resolve the current situation in a consensual manner without the need for a bankruptcy filing. Genesis continues to have constructive conversations with creditors,” said Genesis.
Speculation has swirled in recent days about financial troubles at Genesis, which halted takeovers and new lending last week. After the shutdown, the Wall Street Journal reported that Genesis had until Monday morning to secure $1 billion in funding. Genesis also publicly revealed that it has $175 million in exposure to FTX now bankrupt.
Genesis has several businesses, including lending, custody, and trading in the spot cryptocurrency and OTC derivatives markets.
In recent days, there has been frenzied discussion on social media about more bankruptcies in the cryptocurrency space following the collapse of FTX. Some crypto industry insiders have been focused on Genesis’ ability to weather the crypto storm, multiple sources told MarketWatch.
One of the results of this was reflected in one of the most popular bitcoin-related products, the Grayscale Bitcoin Trust GBTC,
The trust, which is the only exchange-traded product in the United States with direct exposure to bitcoin (although an exchange-traded fund with exposure to bitcoin futures also trades), sold off, resulting in its discount to the net asset value of its bitcoin. holdings to briefly expand to more than 50%.
According to Charles Hayter, CEO of CryptoCompare, a company that provides data on digital asset markets, the growing discount reflects traders’ concerns that Genesis’ problems could spill over and impact its parent company, Digital Currency. Group. DCG is also the parent company of Grayscale, the asset manager of the Grayscale Bitcoin Trust.
Bernstein analysts Gautam Chhugani and Manas Agrawal wrote in a Monday note that “crypto investors continue to speculate on a Genesis spillover into DCG and thus potential strategic options on Grayscale, its most valuable business. Crypto investors also fear collateral damage to GBTC’s reputation from the recent leverage explosion between Genesis, Three Arrows, and Alameda.
DCG is considered one of the “blue chip” companies in the crypto world, in addition to being one of the most valuable companies in the space, multiple sources told MarketWatch.
Still, Bernstein’s team, along with analysts at Bloomberg Intelligence, said a Genesis bankruptcy is unlikely to have a broader impact on GBTC or DCG.
According to Bernstein, Digital Currency Group and Genesis own about 10% of all outstanding GBTC shares, and the company may choose to sell those holdings to meet its liquidity needs. That was equivalent to around $560 million as of Monday morning, analysts said, although the market value of bitcoin and GBTC fluctuates.
CoinDeskwhich is also owned by DCG, announced over the summer that DCG had taken on the burden of more than $1 billion that Genesis loaned to Three Arrows Capital Ltd. Genesis would be among the main creditors of 3AC.
For years, GBTC traded at a significant premium to the value of its bitcoin because it was one of the only channels for accredited and institutional investors to gain direct exposure to bitcoin.