After a long back-and-forth, the Genesis and DCG drama appears to be coming to a relatively smooth end after Genesis reached an agreement with DCG and other creditors yesterday – but a price crash could be looming as DCG is forced to sell shares in its Grayscale Bitcoin (GBTC) and Ethereum (ETHE) Trusts.
As the Financial Times reports today, Digital Currency Group has already begun selling shares in several of its most valuable Grayscale trusts at a steep discount. The sales are intended to raise capital to pay creditors from bankrupt Genesis Trading.
Bitcoin And Ethereum Crash Looming?
The information is based on U.S. securities records seen by the news outlet. According to them, Grayscale’s Ethereum Trust is currently the focus of DCG, where the group sold about a quarter of its shares in several transactions since January 24 to generate about $22 million.
The company is selling at about $8 per share, although each share is entitled to $16 in Ether. “This is simply part of our ongoing portfolio restructuring,” DCG said.
GBTC, which holds 633,000 Bitcoins, appears to be untouched so far. Whether DCG also plans to sell its shares in it to raise liquidity is unclear at this time. DCG purchased nearly $800 million worth of GBTC shares from March 2021 to June 2022, in an attempt to keep the discount from rising further due to a lack of demand.
This gives the company an estimated 9.67% of the trust’s outstanding shares. In the event that DCG needs to raise more cash, selling these shares may seem like an option. However, selling them could have a massive impact on the discount to NAV, which is already at 43.08%.
In addition, it should be noted that by law DCG cannot sell more than 1% of its outstanding shares per quarter unless it receives separate approval from the U.S. Securities and Exchange Commission. In the absence of such approval, the Grayscale Bitcoin Trust sale would take approximately 2.5 years for DCG to sell its entire shares.
Generally, the situation is uncertain at this time because it is not really clear if the ETHE and GBTC sales will have a direct impact on the spot market. This depends on who the Bitcoin and Ethereum Trust shares are sold to and under what terms – whether DCG allows redemptions to provide liquidity at par.
A warning of a Bitcoin and Ethereum price crash would therefore be premature.
It’s also worth noting that DCG has initiated “smaller block” sales of shares in its Litecoin Trust, Bitcoin Cash Trust, Ethereum Classic Trust and Digital Large Cap Fund, according to the report.
DCG And Genesis Reach Agreement With Creditors
Yesterday, it became known that Gemini has reached an agreement in principle with Genesis, DCG and other creditors on a plan that will provide Earn users with a path to recovering their assets. As part of this initiative, Gemini will also donate up to $100 million to Earn users.
Under the terms of the agreement, DCG would also swap its $1.1 billion note due 2032 for convertible preferred stock issued by DCG. In addition, DCG would refinance its existing 2023 term loans with a new junior secured term loan in two tranches to be paid to creditors in the aggregate amount of $500 million.
One piece of undetermined information is at what value the preferred shares will be transferred to DCG equity. According to previous knowledge, the new DCG package will ensure that creditors will recover more than 80% of the funds, but this still depends on a convertible preferred equity note, realized liquidation prices, and the unknown costs associated with the bankruptcy procedure.
At press time, the Bitcoin price stood at $22,941, holding above the crucial support at $22,635.
Featured image from iStock, Chart from TradingView.com