The cryptocurrency community has been actively discussing Genesis’ plan to sell approximately 36 million shares of Grayscale Bitcoin Trust (GBTC), equating to a transaction valued at around $1.5 billion. This announcement has triggered concerns within the community regarding a potential downturn in the market, reminiscent of anxieties that followed the FTX bankruptcy estate’s massive sale of over $1 billion worth of GBTC. However, a deeper examination of the situation and subsequent clarifications suggest a less alarming scenario than initially perceived.
Genesis’ decision to divest a significant portion of GBTC shares is motivated by recent financial difficulties and legal complications. Sam Callahan, a Senior Analyst at Swan, initially raised this concern on social media platform X (formerly Twitter), indicating, “The FTX bankruptcy estate sold more than $1 billion worth of GBTC… Another bankruptcy estate is planning to sell billions worth of GBTC soon – Genesis.” This statement emphasized the looming possibility of GBTC outflows affecting the wider Bitcoin market.
The GBTC shares in question primarily stem from two sources: Genesis’ undercollateralized loan to Three Arrows Capital (3AC), resulting in the acquisition of 4.7 million GBTC shares, and 30.9 million GBTC shares utilized as collateral for the Gemini Earn program. The latter involvement led to regulatory scrutiny and a subsequent $21 million settlement with the SEC by Genesis.
Further complicating matters, an additional 31 million GBTC shares valued at $1.3 billion were designated for Gemini lenders, totaling nearly 67.1 million shares worth close to $3 billion, poised for sale. This substantial liquidation plan fueled concerns about a potential negative impact on Bitcoin’s market value due to increased GBTC outflows.
The possibility of this liquidation prompted concerns over potential GBTC outflows and their potential impact on Bitcoin’s market value. However, Greg Schvey, CEO at Axoni, offered a crucial perspective that reframes the narrative. Schvey underscored the importance of in-kind repayments, stating:
“The in-kind repayment mechanism is vital for understanding why concerns about a market downturn may be exaggerated. As Callahan later acknowledged, learning from Schvey, the critical issue becomes the proportion of creditors who will opt to sell their BTC upon receiving it.”
Schvey’s insights emphasize that the in-kind distribution was a strategic decision to prevent long-term BTC holders from being compelled to recognize gains. “Notably, in-kind distribution was a priority negotiation topic to prevent long-term BTC holders from recognizing gains when receiving USD back,” he noted, suggesting a belief that a significant number of lenders may not immediately sell their received Bitcoin.
This detailed explanation dispels the initial apprehensions surrounding Genesis’ GBTC sale and underscores a concerted effort to mitigate adverse effects through in-kind repayments, potentially stabilizing market reactions.
