Will Bitcoin, Ethereum crash? DCG sells greyscale shares

by James · February 10, 2023

After a long back-and-forth, the Genesis and DCG drama appears to be coming to a relatively smooth end after Genesis reached an agreement with DCG and other creditors yesterday – but a price crash could be on the way as DCG is forced to sell shares in its Grayscale Bitcoin (GBTC) and Ethereum (ETHE) Trusts.

As the Financial Times reports today, Digital Currency Group has already begun selling shares in several of its most valuable Grayscale trusts at a deep discount. The sales are intended to raise capital to pay creditors from bankrupt Genesis Trading.

Looming Bitcoin and Ethereum Crash?

The information is based on US securities records seen by the news media. According to them, Grayscale’s Ethereum Trust is currently the focus of DCG, where the group sold about a quarter of its shares in several transactions since January 24 to generate around $22 million.

The company is selling for around $8 per share, although each share is entitled to $16 in Ether. “This is simply part of our ongoing restructuring of the portfolio,” DCG said.

GBTC, which has 633,000 Bitcoins, appears to be untouched so far. Whether DCG also plans to sell its shares in it in order to obtain liquidity is currently unclear. DCG bought nearly $800 million worth of GBTC shares from March 2021 to June 2022, in an attempt to prevent the discount from rising further due to lack of demand.

This gives the company an estimated 9.67% of the trust’s outstanding shares. In case DCG needs to raise more money, selling these shares may seem like an option. However, selling them could have a massive impact on the discount to NAV, which is already 43.08%.

In addition, it should be noted that DCG cannot by law sell more than 1% of its outstanding shares per quarter unless it receives separate approval from the US Securities and Exchange Commission. In the absence of such approval, the sale of Grayscale Bitcoin Trust will take approximately 2.5 years for DCG to sell the entire shares.

In general, the situation is uncertain at this time because it is not entirely clear whether the ETHE and GBTC sale will have a direct impact on the spot market. This depends on who the Bitcoin and Ethereum Trust shares are sold to and under what terms – whether DCG allows redemptions to provide liquidity at par.

A warning of a Bitcoin and Ethereum price crash would therefore be premature.

It’s also worth noting that DCG has initiated “smaller block” sales of shares in Litecoin Trust, Bitcoin Cash Trust, Ethereum Classic Trust and Digital Large Cap Fund, according to the report.

DCG and Genesis reach agreement with creditors

Yesterday it was known that Gemini has reached an agreement in principle with Genesis, DCG and other creditors on a plan that will give Earn users a path to recover their assets. As part of this initiative, Gemini will also donate up to $100 million to Earn users.

Under the agreement, DCG will also exchange its $1.1 billion note due 2032 for convertible preferred stock issued by DCG. In addition, DCG will refinance its existing 2023 term loans with a new junior secured term loan in two tranches payable to creditors in an aggregate amount of $500 million.

Part of the undetermined information is at what value the preference shares will be transferred to the DCG share. According to previous knowledge, the new DCG package will ensure that creditors get back more than 80% of their funds, but this still depends on a convertible preferred stock note, realized liquidation prices and the unknown costs associated with the bankruptcy procedure.

At press time, the Bitcoin price stood at $22,941, holding above the crucial support at $22,635.