Genesis approved to sell $1.6B GBTC shares

A US bankruptcy judge has authorized the sale of $1.6 billion worth of Grayscale Bitcoin Trust (GBTC) shares to bankrupt crypto trading desk and lender Genesis, according to a court filing.

Along with the GBTC shares, Genesis will sell its shares in Grayscale Ethereum Trust (ETHE) and Grayscale Ethereum Classic Trust (ETCG) as part of the company's plan to pay off creditors.

The approval came despite objections from Genesis parent company Digital Currency Group regarding the premature nature of the sale in connection with a comprehensive bankruptcy plan. This morning the DCG argued that the scheme would boost over-paying creditors.

In court filings, DCG argued that the payment plan “disproportionately favors a small controlling group of creditors over others” and that “DCG cannot support this plan, and the court should not approve it.”

The biggest issue? According to DCG, the value of digital assets such as Bitcoin (BTC) and Ethereum (ETH) has increased since Genesis went bankrupt in January 2023, so some lenders will receive much more than others.

But the judge didn't believe it.

Genesis' objective is to use revenue to pay customers and avoid monthly fees associated with its loyalty agreements. This development is part of Genesis' broader liquidation plan, which includes settlements with regulatory bodies to prioritize customer payments. A future court hearing will consider approval of Genesis' full bankruptcy plan on February 26.

Genesis first ran into trouble in 2011. It was in November 2022. The firm was previously known to have lent billions to bankruptcy hedge fund Three Arrows Capital. But when things started to fall apart at Alameda Research and FTX, things got even more serious for Genesis. The company filed for Chapter 11 bankruptcy protection in January 2023.

Meanwhile, the judge's approval means GBTC will face more selling pressure after seeing a surge last month. After the US Securities and Exchange Commission approved Greyscale's conversion to a GBTC-to-Bitcoin ETF, it's been a tough few weeks of sell-the-news trading as investors liquidated their GBTC holdings.

Even with the series of outflows since GBTC changed hands, keep in mind that the currency is far and away the dominant commodity in the space.

Its assets under management are nearly four times that of BlackRock's iShares Bitcoin Trust (IBIT), which just cleared its $5 billion triumph this week. That measure is significant because it means that IIBIT has now doubled its fee from the original 0.12% to 0.25%.