It was exciting last few weeks while we had the countdown to the New Year, time has gone fast.
So, however, the crypto and other asset markets were, at heart atleast I was set to be merry, at that season.
Alas!! The season is over and now it’s time again to think about the count down to reach the last leg of this bear market… !!
There is a Black swan event possibility that could play out where Digital Currency Group (DCB) will be forced to have Grayscale(it’s subsidiary company) liquidate its Altcoin trust and Bitcoin trust holdings that would send the prices of all cryptos very low indeed!!!
(Phew!! … as if prices are not already got low enough because BTC is 75% down from its All Times highs(ATH) and most Altcoins held in Grayscale Trusts are already 90% down from its ATH)
DCB is under pressure to sort out the liquidity crunch issues its institutional lending subsidiary company Genesis brokerage is facing.
After FTX’s fallout, Genesis Brokerage that supports crypto exchanges in their crypto deposit earn programs by providing interest to exchanges on the customer deposits that they have given for lending, halted redemptions of deposits.
This has affected crypto exchanges like Gemini whose Crypto Earn program depended on Genesis providing interest on customer deposits that’s lent to Genesis.
Gemini too was forced to halt their customers who are availing their crypto earn service from withdrawing their deposits.
Genesis, is not having funds to honour all withdrawals, and to pay back its creditors.
All the story about that was hot last year, but the consequence of it can be Grayscale needing to liquidate its Altcoin and Bitcoin Trust holdings to pay back Genesis creditors.
Genesis’s liability issues are due to DCB and bankrupt hedge fund 3 Arrows Capital defaulting on loans taken from the company.
DCB has a debt of $575 million to pay Genesis and has also taken on liabilities of 3 Arrows Capital so has an additional $1.1 Billion promissory note to pay Genesis. This is mostly why Genesis is facing a liquidity crunch.
The problem for both DCB and 3 Arrows Capital last year before all the crypto fallout happened due to Terra/UST collapse was GBTC’s NAV was at a discount ranging from 7% to 30% to BTC. It is possible that both these entities took loans from Genesis to buy more GBTC to close the gap between market price of BTC and GBTC.
It is possible these entities took loans from Genesis putting their GBTC assets as collateral. 3 Arrows Capital fell into insolvency and could not pay back Genesis and DCB had to take over the liabilities of 3 Arrows Capital to prevent Genesis from going insolvent.
Even now the major problem for DCB other than these debts is the NAV of GBTC, its discount gap has widened to BTC’s price as it’s over 45% and DCB holds a lot of GBTC shares, whose value is at a wide 45% discount to BTC.
Now, if DCB manages to raise capital, it need not sell its cryptos held in its Grayscale Altcoin and Bitcoin Trusts. However, if it cannot manage to raise Capital then it has to liquidate Grayscale’s Altcoin and Bitcoin Trusts and sell those cryptos.
If DCB liquidates any of Grayscale’s Altcoin trusts, prices of Altcoins that Grayscale holds in its trust would fall further low. Grayscale has the following Altcoin Trusts and the prices of these Altcoins would decline further more if their holdings in Grayscale’s Altcoin Trust is liquidated - BAT, BCH,LINK, MANA, ETC, LTC, SOL. XLM and ZEC.
If DCB has to liquidate Grayscales GBTC trust, it would have significant declines in BTC prices because Grayscale holds 3.3% of BTC’s market cap and liquidation of GBTC trust would have more than 630,000 BTC getting dumped in the market!!
Well, we crypto enthusiasts are hoping this does not happen, but let’s be practical, DCB has to solve Genesis liquidity issues and have funds to pay back its creditors, if it can’t raise funds to pay back Genesis’s creditors,then liquidation of Grayscale’s Altcoin and Bitcoin Trusts is the only option.
Thank you all for reading and I am sure it’s not too late to wish my readers a Happy New Year irrespective of the crypto market (: …
We have already experienced severe crypto pains last year, and this last decline will put an end to this crypto pain phase when crypto coins reach its bottom.
