Genesis Seeks to Liquidate $1.6B in Trust Assets After Bankruptcy

Cryptocurrency lending firm Genesis Global Capital has filed an urgent request with the United States Bankruptcy Court for the Southern District of New York, seeking approval to liquidate approximately $1.6 billion worth of assets held in Grayscale's Bitcoin, Ethereum, and Ethereum Classic investment trusts. 

Background of Genesis Bankruptcy

Genesis filed for Chapter 11 bankruptcy protection on January 19, 2023, citing the aftermath of the FTX collapse as the primary cause of its insolvency. The crypto lender had significant exposure to Sam Bankman-Fried's failed exchange, with nearly $175 million still owed to Genesis.

As part of the bankruptcy proceedings, Genesis is looking to raise capital to pay back creditors by selling off assets held by its parent company, Digital Currency Group. This includes substantial holdings in Grayscale's GBTC, ETHE, and ETCG trusts.

Intent to Sell Trust Assets Quickly

In its filing, Genesis stressed the need to liquidate its position in the trusts as soon as possible to avoid potential price fluctuations. As of December 2022, the total value of shares held by Genesis across the three trusts was approximately $1.6 billion.

GBTC accounts for the lion's share at 87% of the total, with a value of $1.38 billion. ETHE makes up 10% at $169 million, while ETCG is just 3% at $38 million.

Recently, GBTC converted to a spot Bitcoin ETF, allowing Genesis to redeem shares directly for cash. However, ETHE and ETCG do not have a redemption program, meaning Genesis needs special approval to sell.

Concentrated Holdings Could Impact Prices

The large holdings present potential risks for significant price impacts if liquidated too quickly. As of September 2022, GBTC held about 3.2% of all circulating Bitcoin.

Meanwhile, ETHE had 2.5% of all Ethereum and ETCG owned 8.5% of Ethereum Classic. Large sales could put downward pressure on prices.

To mitigate this, Genesis has agreed to work cooperatively with the trusts to maximize sale prices and limit market impact. This includes selling over an extended period using algorithms designed to minimize slippage.

Outcome Important for Genesis Creditors

The ultimate goal is to raise as much capital as possible from the trust shares to pay back creditors waiting on Genesis' bankruptcy proceedings.

With cryptocurrency prices still depressed from the 2022 bear market, the timing of the sales will be critical. Crypto markets remain volatile, and a quick turnaround is optimal.

The court still needs to approve Genesis' liquidation request. However, the urgency and intent are clear - sell the concentrated trust assets quickly and carefully to maximize the funds available to distribute to creditors. The outcome of this proposed sale will be an important milestone in Genesis' path through bankruptcy.

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