D-Day Looms For Bitcoin – Is DCG / Genesis Going Bankrupt?
The question of whether Genesis Trading and Digital Currency Group (DCG) will go bankrupt is currently hanging over the crypto and Bitcoin market like a sword of Damocles. In the event of bankruptcy, DCG may be forced to liquidate its cash cow, Grayscale and Grayscale Bitcoin Trust (GBTC).
But how likely is that to happen? To answer this, it is extremely important to understand what the three companies are, how they are related, and what obligations they have to each other. Additionally, let’s take a look at the rumors that have been circulating for the past few days and try to determine their veracity.
Why could today be a D-day for Bitcoin?
DCG is one of the most important companies in the crypto industry and the parent company of a number of well-known crypto firms, including Genesis and Grayscale.
Genesis is the only full-service broker in the crypto space and has been a jewel in DCG’s portfolio. The company plays a critical role in providing access and risk management for large institutions.
Nevertheless, it was already floundering after the collapse of Three Arrows Capital (3AC) and was rescued by DCG. The parent company is now a $1.2 billion creditor to 3AC.
Genesis announced late last week that it would suspend payouts for the Genesis Earn program. As a result, it was revealed that the company would need a cash infusion of $1 billion by today, Monday.
If Genesis is unable to raise this amount from outside backers, things could look bad for DCG and, by extension, Grayscale, according to rumors. Grayscale Bitcoin Trust currently has 634,000 BTC that could reportedly be liquidated, putting massive selling pressure on the Bitcoin market.
One of the main sources of the current rumors is Andrew Parish, co-founder of ArchPublic. He claims there are “zero interested parties” for Genesis.
Absolutely zero bids for Genesis and DCG increase.
** Genesis creditors prepare for “imminent” bankruptcy.
— Andrew (@AP_ArchPublic) 20 November 2022
However, the legitimacy of this source is being questioned in the crypto community. Analyst Dylan LeClair expressed his doubts and was asked to take this guy’s sources with a grain of salt.
No idea if this guy is just making things up or not, but at this point absolutely nothing would surprise me.
Take this boy’s sources with a grain of salt, but… Where there’s smoke, there’s often fire.
Leverage kills – steady guys pic.twitter.com/B0oDJe78jh
— Dylan LeClair 🟠 (@DylanLeClair_) 20 November 2022
Assuming that Genesis is indeed unable to attract capital, DCG may be forced to sell shares and some of the portfolio. Adam Cochran, a partner at VC firm Cinneamhain Ventures, has been scrutinizing DCG’s assets to assess whether it can close the $1 billion gap on its own.
DCG may try to sell the companies in its portfolio, including Luno, Foundry and Coindesk, as well as a significant venture portfolio. However, Cochran believes that $1 billion is very optimistic and said, “as a VC, it’s not a lot I would offer with a secondary.”
So I would assume we are looking at something like this for a breakdown.
These are figures from the outside, but it will give us an overview of what their venture portfolio might look like. pic.twitter.com/loH4mMiznG
— Adam Cochran (adamscochran.eth) (@adamscochran) 19 November 2022
Cochran went on to explain that Grayscale, Genesis and Luno – in that order – are likely to be DCG’s top priorities. So to get to $1 billion, they would have to sell some of their equity, all of their ventures, all of their liquid assets, and Luno/Coindesk/Foundry (if it has any value), according to Cochran.
In the end, DCG had to throw everything overboard to save its golden goose. Only if this fails will a liquidation of the Grayscale Bitcoin Trust be on the table.
My guess is that if we get any news this week other than that they closed a round, that means most of this will be sold. And if they can’t get the raise in time, then they have to look at spinning off the shades of gray themselves.
But even this may not be easy. Granted, Grayscale has already dissolved its XRP trust in the past. However, this was in light of the US Securities and Exchange Commission’s lawsuit against Ripple Labs.
QCP Capital noted in its latest report that “those expecting GBTC to allow a one-time redemption for Genesis to meet liquidity needs are misguided, as this must be done with the SEC’s approval.” Given the SEC’s opposition to GBTC this year, QCP Capital doesn’t expect that to happen anytime soon.
Ram Ahluwalia, CEO of Lumida Wealth Management, meanwhile, considered that “the right move for Genesis is an acquisition.” Potential buyers could include GS, ICE or a consortium of investment banks. Ahluwalia stated:
It won’t be easy – headline risk, regulatory scrutiny, asset quality issues, risk-off climate, etc. (MS, Merrill, CS, Deutsche and Jefferies wouldn’t do this for various reasons).
If there are no acquirers, DCG will have to plug the gap, which Ahluwalia believes they will not do because the business is not profitable. “It would mean an organized bankruptcy for the Genesis credit subsidiary,” he said.
At press time, Bitcoin investors appeared very unsettled and in a risk-free mode. Bitcoin price fell to $16,000, near the bear market of $15,675.