A U.S. bankruptcy judge recently granted permission to Genesis, a bankrupt crypto trading desk and lender, to sell approximately $1.6 billion worth of its shares in Grayscale Bitcoin Trust (GBTC), Grayscale Ethereum Trust (ETHE), and Grayscale Ethereum Classic Trust (ETCG). This decision is part of Genesis’ strategy to repay its creditors following its Chapter 11 bankruptcy protection filing in January 2023.
Despite objections from Digital Currency Group (DCG), Genesis’ parent company, regarding the timing of the sale in relation to the overall bankruptcy plan, the judge approved the request. DCG expressed concerns that the repayment plan favored a select group of creditors and could lead to overpayment.
This objection stemmed from the fact that the prices of digital assets like Bitcoin (BTC) and Ethereum (ETH) had risen since the company filed for bankruptcy. However, the judge sided with Genesis, noting that the proceeds from the sale would be used to repay customers and avoid monthly fees associated with trust agreements.
This decision is part of Genesis’ broader liquidation plan, which also includes settlements with regulatory bodies to prioritize customer repayments. The approval of Genesis’ entire bankruptcy plan will be further considered at a court hearing scheduled for February 26.
Genesis encountered financial troubles starting in November 2022, primarily due to significant loans made to bankrupt hedge fund Three Arrows Capital. The situation worsened as other entities like Alameda Research and FTX faced challenges, leading to Genesis filing for Chapter 11 bankruptcy protection in January 2023.
Implications for the cryptocurrency market
The approval of the sale by the judge is expected to add selling pressure to GBTC, which has already experienced significant outflows in recent weeks. This trend intensified after the U.S. Securities and Exchange Commission approved Grayscale’s conversion of GBTC to a spot Bitcoin ETF, resulting in investors liquidating their GBTC shares.
Despite the persistent outflows, GBTC remains a dominant product in the cryptocurrency space, with assets under management approximately four times that of BlackRock’s iShares Bitcoin Trust (IBIT), which recently surpassed the $5 billion milestone. This milestone is notable as it signifies IBIT doubling its fee from the initial 0.12% to 0.25%.
The approval for Genesis to sell its shares in various Grayscale trusts represents a significant step in its efforts to repay creditors and navigate through bankruptcy proceedings. However, concerns raised by DCG regarding creditor favoritism and potential overpayment highlight the complexities involved in such cases. The outcome of Genesis’ bankruptcy plan will be closely monitored, particularly within the context of the broader cryptocurrency market and investor sentiment towards related investment products like GBTC and IBIT.
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