Genesis bankruptcy of EOY at 59%; Bitcoin Investors Pivot
A possible Chapter 11 bankruptcy of Genesis Trading and parent company DCG continues to depress sentiment in the Bitcoin market. Genesis last commented on Twitter on November 16. Parent company DCG last commented on November 18 via the social media platform.
However, investors seem to have a rather positive view of the silence. As recent data from the world’s largest decentralized prediction market Polymarket shows, market participants now estimate the probability of a Genesis insolvency at just 59% by the end of the year (EOY).
The peak value was 81%. Thus, the narrative seems to have turned to the extent that the problem can be fixed for Genesis and DCG. Expert opinion currently suggests that it is more of a lack of liquidity than a solvency problem for DCG.
Bitcoin experts warn against false panic
Bitcoin AND Samson Mow explained that the DCG group has real assets and income-generating businesses, and the problem is primarily a lack of liquidity.
According to Mow, Genesis and DCG have enough assets to pay off debt, they just aren’t available in cash. The worst-case scenario, a bankruptcy of Genesis and DCG “seems unlikely” to him.
Since DCG has high revenues and assets, the insolvency of Genesis would not be the end of the parent company. To that extent, Mow considers the theory that Grayscale could be liquidated and 634,000 BTC could hit the open market also “an unlikely outcome.”
DCG still has a number of good assets, including Grayscale, which generates about $500 million to $800 million a year in management fees. According to Mow, the likely outcome is a restructuring or an outright acquisition by a larger player.
Ryan Selkis, founder of Messari, currently strikes a similar tone. He also cautions against scaremongering that DCG could simply “dump” its GBTC shares. “It’s part of their liquidity crisis, but also good news for GBTC shareholders and FUD fight,” Selkis said.
The reason is that shades of gray must follow strict rules. Thus, DCG can not only sell its nearly $800 million worth of GBTC shares because it is not an ETF as desired, but a listed vehicle that falls under Rule 144.
Because of this, there are two important limitations. DCG must publish a notice of proposed sale. Furthermore, there is a cap on sales of 1% of outstanding shares or weekly trading volume.
Given GBTC has a daily volume of ~4.5mm shares giving a quarterly cap on sales of 2.5mm shares ($23mm/quarter) under the trading test and 6.9mm shares ($62mm/quarter) under the asset test.
If Grayscale were to start a forced sale, it would send the price of GBTC further down and the discount would continue to grow. According to Selkis, this liquidity problem makes it much more likely that DCG-Genesis will refinance with GBTC as collateral.
At press time, Bitcoin was trading at $16,157. Thus, the next important resistance is currently at $16,310, while the support at $16,050 is of great concern.
