The crypto market has faced extreme selling pressure over the past week, with Bitcoin reaching a new annual low below its current level. The number one crypto by market capitalization has been caught up in the collapse of crypto exchange FTX and its subsequent fallout.
At the time of writing, Bitcoin (BTC) is trading at USD 16,650. Over the past 24 hours, the cryptocurrency is registering sideways price action by a 5% over the previous week. Other cryptocurrencies in the top 10 of the market are following a similar trajectory and moving downwards.
Bitcoin market threatens to fall further?
The collapse of FTX forced many companies to go out of business. Contagion is spreading across the nascent industry, which could affect major players, including the Grayscale Bitcoin Trust (GBTC), run by Digital Currency Group (DGC).
The FTX outage affected one of DGC’s subsidiaries, cryptocurrency lender Genesis. Yesterday, this company halted new withdrawal requests from its customers, citing a liquidity crisis caused by the demise of FTX. Company mention:
The bankruptcy of 3AC negatively impacted the liquidity and maturity profiles of our lender Genesis Global Capital. Since then, we have reduced risk and strengthened our liquidity profile and the quality of our collateral (…). FTX has caused an unprecedented turmoil in the market resulting in abnormal withdrawal requests that have exceeded our current liquidity.
Genesis’ parent company, DCG, claims it has not been affected by the recent events. However, there are speculations about a possible capitulation event within the investment firm and its other subsidiaries, including the GBTC.
One of the largest Bitcoin holders in the world with over 600,000 BTC worth over $13 billion and 3 million ETH worth $3.7 billion. If Grayscale or DCG become forced sellers, the crypto market is likely to see new lows. According to rumours shared by a member of the crypto community:
We hear semi-credible rumors that Genesis may have solvency problems (…). We are aware that Grayscale controls GBTC and ETHE, not Genesis. DCG (the parent company of Genesis and Grayscale) is shutting down Genesis and dissolving the trusts may be necessary if there is a solvency problem and if it is large enough.
Bitcoin is unlikely to continue falling
A separate report from trading desk QCP Capital claims that Grayscale is unlikely to liquidate its Bitcoin holdings. The company operates under the supervision of the US Securities and Exchange Commission (SEC).
QCP Capital believes the SEC is unlikely to authorize a “one-time redemption for Genesis to meet liquidity needs.” The company noted:
With all the SEC backlash against GBTC this year, we certainly don’t expect it to happen any time soon. On the upside, this also means a small chance of a major one-time BTC selling push from this.