Bitcoin tumbles to new lows as Genesis denies imminent bankruptcy

Bitcoin briefly fell to its lowest level in two years on Monday after Bloomberg News reported that digital asset broker and lender Genesis has told investors it could be forced to file for bankruptcy if its current fundraising efforts are unsuccessful.

The price of bitcoin BTCUSD,
+0.61%
fell to $15,615 on Monday after Bloomberg released its report, the lowest level since November 2020, according to CoinDesk.

A representative for Genesis downplayed the Bloomberg report in a statement shared with MarketWatch, claiming the company continues to hold “constructive” discussions with creditors.

“We do not plan to go bankrupt any time soon. Our goal is to resolve the current situation consensually without the need for a bankruptcy filing. Genesis continues to engage in constructive discussions with creditors,” said Genesis.

There has been a lot of speculation over the past few days about financial problems facing Genesis, which led to a halt in repayments and new loans last week. After the halt, the Wall Street Journal reported that Genesis had until Monday morning to secure $1 billion in funding. Genesis also publicly disclosed that it had $175 million in exposure to the now-bankrupt FTX.

Genesis has several activities including lending, custody and trading of spot cryptocurrency and over-the-counter derivatives markets.

In recent days, there has been rampant talk on social media about more bankruptcies in the cryptocurrency space following the collapse of FTX. Some crypto industry insiders are focused on Genesis’ ability to weather the crypto storm, several sources told MarketWatch.

A result of this has been reflected in one of the more popular bitcoin-linked products, the Grayscale Bitcoin Trust GBTC,
-0.84%.

The trust, the only exchange-traded asset in the US with direct exposure to bitcoin (although an exchange-traded fund with exposure to bitcoin futures also trades), has sold, reducing the discount to the net asset value of its bitcoin holdings. to briefly expand to more than 50%.

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The increasing discount reflects traders’ concerns that problems could spill over at Genesis and affect its parent company, Digital Currency Group, according to Charles Hayter, CEO of CryptoCompare, a company that provides data on digital asset markets. 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 about a Genesis spillover to DCG and thus possible strategic options on Grayscale, the most valuable venture. Crypto investors also fear indirect reputational damage for GBTC from the recent leverage between Genesis, Three Arrows and Alameda.

DCG is considered one of the “blue chip” companies in the crypto world, along with one of the most valuable companies in the space, several sources told MarketWatch.

Still, the Bernstein team, along with Bloomberg Intelligence analysts, have said a Genesis bankruptcy is unlikely to have a wider impact on GBTC or DCG.

According to Bernstein, Digital Currency Group and Genesis own about 10% of all outstanding GBTC shares and the company could choose to sell these holdings to meet its liquidity needs. That equaled about $560 million as of early Monday, the analysts said, though the market value of bitcoin and GBTC fluctuates.

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CoinDesk, which is also owned by DCG, reported over the summer that DCG had taken on the more than $1 billion burden Genesis had loaned to Three Arrows Capital Ltd. Genesis would be one of 3AC’s largest creditors.

For years, GBTC traded at a significant premium to the value of its bitcoin because it was one of the few channels for accredited and institutional investors to gain direct exposure to bitcoin.

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