A coordinated sell-off in cryptocurrencies owned by Digital Currency Group (DCG) caught the eye on Saturday. This sale apparently opened a “dark market” where Genesis’ assets were traded.
Is DCG selling its cryptocurrencies?
An anonymous crypto enthusiast named Andrew, who identifies himself as Founder X, shared:
Genesis creditor rights are starting to be sold in small lots in what could be described as the ‘dark market’. Two transactions exceeding $15 million were closed at 35% of the pre-withdrawal suspension value.
He claims to be the source of this trade, which we can’t verify. Andrew says this activity is increasing and adds:
There is an increase in both buyers and sellers of multiple operations and pre-bankruptcy claims in the 35-50% range of principal. Sale of DCG portfolio tokens scared many last night
What’s behind the sale?
As we reported on cryptokoin.com, Genesis Capital suspended withdrawals last month after losing $1 billion in now-defunct crypto hedge fund Three Arrows Capital and $170 million in recently bankrupt exchange FTX. They had $1.8 billion in outstanding loans. Also, now rumors indicate that their gaps are similar, about $2 billion.
Some say DCG owes Genesis about $1 billion. They also state that the situation has remained unresolved for a month. Saturday’s sale may have raised some funds to fix the problem. However, if they liquidated the assets, it also indicates that they actually have no cash left. This is because the business at Grayscale Trusts has completely dried up from billions per month in 2021 to barely $100 million in 2022. They still have the right to receive management fees. However, this is not a public company. It is therefore unclear whether they have imposed a cap on their costs. What is somewhat clear, however, is that they do not have the cash on hand to resolve this Genesis situation, which could at worst potentially lead to the liquidation of Grayscale Trusts.
The source of the problem is not being able to convert to ETF!
It is not clear what effect this will have. Because it hasn’t happened before. However, the funds continued to be one of the preferred investment routes for US-based institutional investors. It acts as a booster during a bull market with a six-month lock-in period that seems to remove assets from the market for a while. However, the opposite is possible during a bear market. However, for some reason redemptions almost never happened. The theoretical discount is likely to affect the global price of Bitcoin as well. Because why buy spot Bitcoin instead of 50% off GBTC if the funds are fully backed?
And yet, investors aren’t biting with the stock price action suggesting they’re basically trapped. Converting it to an ETF might be a way out. However, the Securities and Exchange Commission (SEC) is challenging it in court. As such, investors are basically locked in. Also, investors do not know whether they will result in a complex liquidation of funds. So the Genesis uncertainty makes the situation worse. As a result, the funds are currently not very attractive.
DGC owns these 18 cryptocurrencies
We mentioned that DGC can use part of its portfolio to avoid the risk of bankruptcy. Data provided by Messari shows that the company currently owns 18 cryptocurrencies:
- Hedera Hashgraph (HBAR)
- Filecoin (FIL)
- Flow (FLOW)
- Zcash (ZEC)
- Decentraland (MANA)
- Bitcoin (BTC)
- Ethereum (ETH)
- Reserve Rights (RSR)
- Horizon (ZEN)
- Ocean Protocol (OCEAN)
- Civic (CVC)
- API3 (API3)
- Handshake (HNS)
- Ethereum Classic (ETC)
- The Graph (GRT)
- Stacks (STX)
- Basic Attention Token (BAT)
- Livepeer (LVP)