Bitcoin falls as another leader falters; This top fund buys

by James · November 21, 2022

Bitcoin fell below $16,000 early Monday as worsening liquidity problems raised concerns about the cryptocurrency following the collapse of Sam Bankman-Fried’s FTX. Unconfirmed social media chatter Over the weekend, crypto industry sources, including a unit of Digital Currency Group, had questioned whether the venture capital giant could be the next crypto domino to fall.

DCG owns Grayscale Investments, manager of the world’s largest crypto fund, Grayscale Bitcoin Trust (GBTC). Grayscale has more than 3% of the world’s Bitcoin. DGC also owns cryptobroker Genesis Global Trading and digital-asset news outlet CoinDesk.

Genesis sought a $1 billion emergency loan last week, the Wall Street Journal reported Thursday. The firm halted withdrawals for its $2.8 billion crypto lending unit, Genesis Global Capital, on Wednesday after confirming liquidity problems following FTX’s bankruptcy filing. The the company announced “abnormal withdrawal requests” from customers that exceed current liquidity.

Two of Genesis’ biggest borrowers were Singapore-based crypto hedge fund Three Arrows Capital and FTX-affiliated trading company Alameda Research. Three Arrows Capital, Alameda and FTX are all in bankruptcy proceedings. Three Arrows Capital filed in July while Alameda and FTX filed together in November. DCG filed a $1.2 billion claim against Three Arrows in the July lawsuit after Genesis loaned the firm $2.3 billion.

On November 11, DCG provided Genesis with an equity injection of $140 million as FTX began to collapse.

And Gemini crypto exchange halted withdrawals on interest-bearing accounts as a result of the announcements, as Genesis is a lending partner for the program.

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Grayscale Bitcoin Trust Price Drop

Grayscale announced that the products “continue to operate as normal and recent events have not had any impact on the product or operations.” Grayscale states that Genesis Global Capital is not a counterparty or service provider for any Grayscale product. In an Oct. 3 SEC filing, Genesis was terminated as an authorized participant in GBTC but continues to serve as a liquidity provider.

Greyscale products and GBTC’s underlying assets are held in segregated wallets in cold storage by its custodian Coin base (COIN), the company said. However, Grayscale declined to share its full proof of reserves due to “security concerns.” On Friday, it shared a letter from the Coinbase Custody Trust confirms 635,235 Bitcoin in storage.

“To be perfectly clear: the BTC underlying the Grayscale Bitcoin Trust is owned by GBTC and GBTC alone,” Grayscale tweeted. Many investors online are concerned that DCG may start dumping their Bitcoin holdings to save Genesis. But Grayscale assures investors that is not the case.

Meanwhile, Cathie Wood is buying GBTC at a discount. Ark Investment Management bought more than 315,000 shares of GBTC worth about $2.8 million for its Ark Next Generation Internet ETF (ARKW) last Monday, Bloomberg reported.

GBTC stock fell 5.5% early Monday to $7.85 a share. The price has fallen about 78% so far this year as Bitcoin collapses with the wave of crypto bankruptcies. Shares are well below their all-time highs near $58 as of February 2021, before the current crypto ice age.

Bitcoin, meanwhile, fell below $16,100 from the low $21,000 level in early November following FTX’s bankruptcy.

FTX collapse explained

The FTX exchange has thrown crypto markets into turmoil for the past two weeks after filing for Chapter 11 bankruptcy on November 11. Founder and CEO Sam Bankman-Fried resigned and was replaced by John J. Ray III. The former Enron cleanup chief slammed the SBF, saying, “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of reliable financial information.”

The fourth largest crypto exchange by volume faced a massive liquidity crisis following revelations that its native FTT token made up a majority of sister trading firm Alameda Research’s balance sheet. Crypto exchange Binance announced it would liquidate its FTT holdings on November 6, triggering more than $6 billion in withdrawals from FTX within 72 hours.

Unknown publicly at the time, Alameda Research owed FTX about $10 billion in loans consisting of customer deposits. Meanwhile, FTX invested user funds in various crypto projects and lesser-known tokens – some of which were Bankman-Fried’s own initiatives, exacerbating the liquidity problems.

When FTX crashed, Bitcoin fell to near $15,800 from over $21,200 in four days, taking cryptocurrency prices down with it. Investors transferred more than $3 billion in Bitcoin from exchanges to personal wallets in the week following FTX’s bankruptcy, Glassnode data compiled by CoinTelegraph shows. Bitcoin rallied around $16,500 as of November 17, but fell again as more liquidity issues emerged. Major cryptocurrency prices are still down 20% or more since FTX’s liquidity issuances began on November 5th.