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Are Genesis and Grayscale the next FTX victims to fall?

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  • With GBTC trading at a 40 percent discount to the NAV, questions are rising if institutional players are losing confidence in Bitcoin.
  • After the 3AC collapse, the FTX collapse has put further stress on the lending business of Genesis Global which recently halted withdrawals.

The collapse of the FTX crypto exchange has shaken the entire crypto space and the contagion has been spreading fast to other companies as well in the crypto space. The largest institutional Bitcoin product – Grayscale Bitcoin Trust (GBTC) has come to everyone’s attention recently.

Amid the current BTC price correction following the collapse of crypto exchange FTX, the discount to NAV of the Grayscale Bitcoin Trust has touched a new low at -40 percent. This marks a 100 percent downward transition in the last two years. By the end of 2020, The Grayscale Bitcoin Trust (GBTC) was trading at a +40 percent premium.

However, the trend reversal started for the first time in January 2021 when GBTC started trading at a discount. Since then GBTC has been continuously on a downward trajectory.

Since the discount at GBTC is -40 percent, it means that the Bitcoin price is trading below $10,000 at Grayscale. Such a scenario gives us mixed signals about institutional confidence in Bitcoin at this point.

However, some institutional players have been filling their bags in this market correction. Earlier this week, Cathie Wood’s Ark Invest purchased 315,000 shares of GBTC for a staggering $2.8 million via the ARK Next Generation Internet exchange-traded fund (ticker ARKW).

This has been the company’s first purchase of GBTC since July 2021. ARKW is holding GBTC shares since 2015 and is also the fund’s ninth-largest purchase so far.

FTX Contagion Spreads to Genesis

Earlier this week on Wednesday, November 16, crypto lender Genesis Global announced that it would be halting withdrawals and new loan originations on its platform. The reason behind this decision was the contagion spread with the collapse of the crypto exchange FTX which has led to unusual activity on its platform.

“There is an ongoing run on deposits driven mainly by retail programs and partners of Genesis (i.e., Gemini Earn) and institutional clients testing liquidity,” said Genesis. However, the company said that its trading and custodial business operate as usual. Genesis Global Trading has been registered with the SEC and holds a virtual currency license.

However, the lending arm of Genesis Global has faced massive blows this year. The company is already facing the blow from crypto-hedge fund Three Arrows Capital (3AC) which went bankrupt earlier in June. 3AC owed a total of $2.6 billion to Genesis. Now, the collapse of FTX puts further stress on its lending business.

As per the WSJ report, Genesis tried to raise $1 billion from investors in order to avoid the “liquidity crunch” from FTX’s collapse. This development in Genesis’s lending business is even concerning for Grayscale since they were the liquidity providers to the Grayscale Bitcoin Trust.

As the development proceeds, more cards would unfold and analysts are expecting more companies could likely go out of business in the coming months.


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