After the DXY fell to a new 7-month low of 101.56 yesterday intraday, Bitcoin price briefly managed to tackle the main resistance zone above USD 21,500 and reached its highest level since September 13, 2022, at USD 21,650. However, the euphoria did not last long for two reasons.
First, the DXY showed a strong bounce, and second, the news broke that Genesis Trading could be preparing for bankruptcy. This has fueled new fears that the contagion in the crypto market could continue beyond the Bankruptcy FTX in November. But what is known so far and what could this mean for the Bitcoin price?
Here’s what’s known
That reports Bloomberg report Yesterday, Genesis Trading, a subsidiary of crypto mogul Barry Silbert’s DCG empire, was declared bankrupt. If the report proves true, the bankruptcy filing could come as early as this week, Bloomberg said.
Faced with a lack of liquidity, Genesis is currently conducting confidential negotiations with various creditor groups. Genesis and DCG have reportedly exchanged several proposals with creditors, but have so far failed to reach an agreement.
Genesis is working on a restructuring plan, according to sources informed. Some creditors would be willing to accept a mix of DCG cash and stock.
However, the deal may not be finalized yet, as Bloomberg reported yesterday. According to crypto author Samuel Andrew, citing sources close to DCG, talks are continuing and plans could change. Andrew wrote Today:
UPDATE: The Genesis Trading news of a “pre-packaged bankruptcy” is being refuted by several Genesis creditors who matter. **several sources claim that DCG/Genesis is leaking the pre-packaged bankruptcy story to force a deal. Quote, ‘… far from a foregone conclusion.’
What impact will it have on the Bitcoin price?
The impact of a Genesis bankruptcy on the Bitcoin price will likely depend largely on whether DCG will find a deal with Genesis’ creditors or whether DCG will go bankrupt along with them.
While no details are available yet, it seems likely that a “pre-packaged” deal could prevent a major market impact on Bitcoin price by avoiding DCG’s insolvency and liquidation of Grayscale.
Failure to do so could arguably result in the “cash cow” Grayscale having to be sold or DCG being forced to liquidate large portions of its Grayscale Bitcoin Trust (GBTC) holdings. This is due to the fact that DCG owns Genesis money. The loans are $575 million due in 2023 and an additional $1.1 billion promissory note due in 2032 to Genesis.
However, several factors are still unclear. So it’s still not clear whether a Genesis bankruptcy will automatically result in DCG depending on whether they can raise enough money. Also, the liquidation of GBTC is not an easy task as it comes with high legal hurdles and requires SEC approval.
Correspondingly, so does crypto influencer Lark Davis noticed via Twitter: “No indication yet on how this will affect DCG or the Grayscale Bitcoin and Ethereum Trusts.”
Hypothetically, a liquidation of the entire GBTC could mean a huge dump if more than 630,000 BTC were flushed into the still. illiquid market. Even if the liquidation were to take place over a period of several months, such selling pressure would likely drive Bitcoin’s price down significantly.
At the time of writing, Bitcoin price remained relatively stable despite the rumors, standing at $20,802.
Featured image by Behnam Norouzi / Unsplash, Graphics of TradingView.com