Bitcoin’s Big Shake-Up: Genesis Gets Green Light to Liquidate $1.3B GBTC Shares – Brace for $40K Drop?

• Bankrupt crypto firm Genesis Global has received authorization from a New York court to liquidate $1.6 billion in Grayscale shares, with a vast majority of it being in GBTC.
• With about $1.3 billion about to be dumped into the market, some have expressed concern that it could pose a threat to Bitcoin’s price and push the crypto back to $40,000.

Bitcoin has had a great start to the year, hitting a two-year high as it edged toward $53,000. However, a New York bankruptcy court ruling could hand the top crypto a $1.3 billion blow that could cut off the momentum and push it back to $40,000.

As reported by Bloomberg, Judge Sean Lane of the United States District Court for the Southern District of New York ruled in favor of Genesis Global Holdco LLC this week, allowing the bankrupt crypto company to sell off its Grayscale shares.

While the exact details of Genesis’ holdings haven’t been made public yet, court filings suggest that the company held 35 million shares of the Grayscale Bitcoin Trust (GBTC), which now trades as the largest Bitcoin spot ETF in the market despite heavy outflows in recent weeks. The company also holds 11 million shares in Grayscale’s Ethereum and Ethereum Classic Trusts. Analysts estimate the GBTC holdings at around $1.3 billion.

Will Genesis Peg Bitcoin at $40,000?

As the crypto industry awaits Genesis’ next move, there’s growing apprehension that a big dump could be coming, which could significantly impact BTC’s price.

As one analyst notes, the number of GBTC shares that Genesis will dump could rise to 67 million, worth a staggering $3 billion. Sam Callahan, a senior analyst at US Bitcoin exchange Swan, noted that this would result in accelerated outflows from Grayscale’s GBTC outflows, which had slowed down in recent days.

Analysts are torn on how impactful the dump will prove to be. Ozi, an analyst at Crypto Hub, believes that the Genesis dump will push the crypto back to $47,000.

At press time, BTC is changing hands at $52,191, rising by 1% in the past day despite a slight dip in trading volume, which settled at $37 billion.

But while Genesis could prove a significant headwind, some context is needed. For one, Genesis creditors will receive their refunds in BTC, not in cash, eliminating the need to dump Bitcoin into the market. In fact, it could have the opposite effect—Genesis will need to purchase Bitcoin from the market to pay its creditors once it disposes of its GBTC shares. As such, the BTC could only be dumped by individual investors, and even in such a scenario, the selloff would be distributed over several weeks.

The proposed Ch 11 settlement requires Genesis to repay creditors in kind (i.e. bitcoin lenders receive bitcoin in return, rather than USD).

Much of the selling pressure from sale of GBTC will be absorbed by the Genesis estate's purchasing of spot BTC.

— Greg Schvey (@GSchvey) February 13, 2024

Additionally, the Bitcoin market is robust enough to absorb the $3 billion, even if it were to be dumped at once. An excellent illustration is with the Bitcoin spot ETFs; since they launched, Grayscale’s GBTC has seen outflows of $6.6 billion. Yet, not only has the market absorbed it, but it has also recorded a positive net flow of over $4 billion.