A possible Chapter 11 bankruptcy of Genesis Trading and parent company DCG is still weighing on sentiment in the Bitcoin market. Genesis last responded on Twitter on Nov. 16. Parent company DCG last spoke out on November 18 via the social media platform.
However, investors appear to be quite positive about the lull. As recent data from the world’s largest decentralized forecast market Polymarket shows, market participants now estimate the probability of a Genesis insolvency to be just 59% by the end of the year (EOY).
The peak value was 81%. So the story seems to have been rotated in such a way that the problem can be solved for Genesis and DCG. Expert opinions currently suggest it’s more of a liquidity shortfall than one solvency problem for DCG.
Bitcoin experts warn against false panic
Bitcoin OG Samson Mow explained that the DCG group has real assets and income-generating businesses, and that the problem is primarily a liquidity shortage.
According to Mow, Genesis and DCG have enough assets to pay debts, they just aren’t available in cash. At worst, a bankruptcy of Genesis and DCG seems “unlikely” to him.
Since DCG has high revenues and assets, Genesis’ insolvency would not mean the end of the parent company. To that extent, Mow considers the theory that Grayscale could be liquidated and that the 634,000 BTC could hit the open market to be “an unlikely outcome” as well.
DCG still has some good assets, including Grayscale, which generates about $500 to $800 million a year in management fees. According to Mow, the likely outcome is restructuring or outright buyout by a larger player.
Ryan Selkis, founder of Messari, currently strikes a similar tone. He also warns of scare tactics that DCG could simply “dump” its GBTC shares. “That’s part of their liquidity crunch, but also net good news for GBTC shareholders and FUD battles,” Selkis said.
The reason is that Grayscale has to comply with strict rules. So DCG can’t just sell its nearly $800 million worth of GBTC shares because it’s not an ETF as desired, but a publicly traded vehicle subject to Rule 144.
As a result, there are two major limitations. DCG must publish a notice of intended sales. Furthermore, there are limits on selling 1% of outstanding shares or weekly trading volume.
Given GBTC has a daily volume of ~4.5mm shares, representing a quarterly cap on sales of 2.5mm shares ($23mm/quarter) under the trade test and 6.9mm shares ($62mm/ quarter) under the asset test.
If Grayscale were to initiate a forced sale, it would push GBTC’s price further down and the discount would continue to grow. According to Selkis, this liquidity problem makes it much more likely that DCG-Genesis will refinance with GBTC as collateral.
At the time of writing, Bitcoin was trading at USD 16,157. So the next major resistance is currently $16,310, while the $16,050 support is a major concern.