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The next potential crisis for Bitcoin; Will the domino of bankruptcies reach the triangle of DCG, Genesis and Gary Scale?

ورشکستگی جنسیس و DCG و گری اسکیل

One of the main concerns that affected all market participants after the fall of FTX is the possibility of the crisis spreading to other important companies in the crypto space that were directly or indirectly connected to FTX.

According to Mihan Blockchain, the most important company that is at risk in the current situation is Genesis Global Capital, which is the largest brokerage in the crypto space and one of the most important companies under the Digital Currency Group. abbreviated as DCG). DCG owns the Grayscale Bitcoin Trust, which is the issuer of GBTC and holds 633,000 Bitcoins.

There are concerns that the bankruptcy of Genesis will force the upstream company, DCG, to liquidate its other subsidiary, the Grayscale Bitcoin Trust. This issue, if realized, could lead to the sale of 633,000 Bitcoins by Grayscale and bring a bigger shock to the market and the price of Bitcoin than the FTX shock. Experts estimate that this scary scenario, if realized, could reduce the price of Bitcoin to $8,000 and maybe even lower..

Before we explain the story, it is necessary to know some things about the companies at risk, namely Genesis, Gary Scale and DCG.

Gary Skille, Genesis and DCG

DCG is one of the most important companies in the crypto space, which has been operating since 2015 in its current form. The company was founded by Barry Silbert, one of the oldest and most successful bitcoiners and one of the most respected figures in the crypto space.

DCG has invested in many prominent companies in the crypto space; Familiar names such as Blockstream, Chainalysis, Circle, Coinbase, CoinDesk, Deprelabs, Dawn Analytics, EtherScan and Ledger are among them. Despite this, DCG’s most important assets are its two subsidiary companies, namely Grayscale and Genesis.

Genesis, which launched the first OTC Bitcoin trading desk in 2013, has completed $116 billion in OTC Bitcoin spot trades in 2021 alone. This impressive figure shows the power and influence of Genesis in the crypto space.

The Grayscale company was launched in 2013 and manages a series of trusts, the most important of which is the Grayscale Bitcoin Trust, which issues GBTC shares in exchange for Bitcoin under its management.

Where did Genesis’ financial problems begin?

It is interesting to know that the domino of bankruptcies that has apparently now reached Genesis started with the collapse of Terra in Adibehesht this year.

One of the companies that suffered the most in the Terra disaster was Three Arrows Capital (3AC). Some estimates indicate a loss of 500 million dollars for 3AC. The issue is related to the current situation where Genesis Capital was one of the largest lenders to 3AC. Genesis had provided 3AC with $2.36 billion in loans, and the collateral value of these loans did not compensate Genesis’ losses in any way.

Also during 3AC’s financial crisis, which eventually led to its bankruptcy, Babel Finance, another major borrower from Genesis Capital, went bankrupt.

These conditions made Genesis’ parent company, DCG, to intervene and take over $1.1 billion of 3AC’s debt instead of Genesis Capital.

Eventually The bankruptcy of 3AC and Babel Finance cost Genesis hundreds of millions of dollars and led to the resignation of its CEO, Michael Moro. However, Genesis seemed to have weathered the storm and things are settling down.

What effect did the FTX exchange bankruptcy have on Genesis?

This situation continued until the collapse of FTX shook the crypto world once again. One of the companies that was directly affected was the futures trading arm of Genesis Global, which announced that $175 million of its assets on the FTX exchange had been frozen. But Genesis took the main hit from the liquidity crisis that occurred at the same time as the collapse of FTX.

People who had placed their liquidity in centralized platforms for profit flocked to these platforms to withdraw their assets. Among these platforms was the Gemini Earn service of Gemini Exchange In order to generate profit, it provided users’ assets for lending to Genesis Global.

This liquidity crisis caused Genesis to request an emergency credit line of 1 billion dollars to pay off its debt; And as we know, he failed to receive this credit and had to suspend withdrawals from his platform, which led to the suspension of withdrawals from Gemini Earn.

However, in the weeks since the story began, Genesis has insisted it has no plans to file for bankruptcy, and the silence of its parent company, DCG, has raised concerns about the safety of DCG and its most important subsidiary, Gary Scale, which controls more than 630 It has a thousand bitcoins in its possession, increasing day by day.

What is the current situation of DCG and how does it affect Gary Scale?

After a long silence of DCG, Barry Silbert on November 22 A letter to DCG shareholders attempted to address some of these concerns. But his letter raised new concerns.

It was mentioned in this letter that Genesis of Moelis Investment Bank He has invited cooperation to restore the structure of his company. This made doubts about the seriousness of Genesis’s condition into certainty. It was also mentioned in this letter that DCG itself has a significant debt to Genesis Capital. Of this debt, which was announced at 1.6 billion dollars, 1.1 billion dollars is related to the guarantee of 3AC debts. also DCG’s total debt (including the debt to Genesis) was estimated at $2 billion.

In the current situation, the most obvious way for DCG to get out of a financial crisis is the so-called (Equity Raise) or raising capital through the sale of assets. One of DCG’s most important assets is about 67 million shares of GBTC, worth approximately $630 million. But the sale of GBTC shares first destroys confidence in Grayscale’s Bitcoin Trust and makes the value of these 67 million shares much lower than their current value. secondly Even if DCG gets $600 million from the sale of these 67 million shares in the most optimistic scenario, this amount is not enough to settle the company’s debt..

Another asset that can be used is Grayscale itself. Receiving an annual fee of 2%, Grayscale’s Bitcoin Trust generates approximately $100-500 million in revenue per year, which could back a loan or one of DCG’s divestiture options.

If this option also fails, it is possible that DCG along with its subsidiary companies will be forced to declare bankruptcy, one of the requirements of which is the dismantling of the Grayscale Bitcoin Trust and the sale of 633,000 bitcoins in the balance of this trust and a dollar refund to GBTC shareholders. .

Experts believe that the selling pressure of 633,000 Bitcoins can reduce the price of Bitcoin to $8,000. If this nightmare comes true, it will have wider ramifications than the FTX bankruptcy and could give the crypto market the most severe blow it has experienced in its short history.

Of course, Michael Sonnenshein, the CEO of Gary Scale, In his recent interview with Yahoo Finance While addressing Grayscale’s plans to become a spot ETF for Bitcoin, he emphasized that Genesis, Grayscale’s sister company, even if it fails to raise equity and is forced to file for bankruptcy, the bankruptcy will be limited to Genesis. Mand and Grayscale, which has a completely separate function, will not be harmed.

Of course, this comment is clearly biased and we have to wait and see where the development of the DCG, Genesis, Gary Scale triangle will take.

  • What is the threat to Grayscale and GBTC?

Grayscale is a subsidiary of a huge company called DCG, which has another subsidiary called Genesis. As a result of the 2022 domino of bankruptcies that started with the collapse of Terra and ended with the collapse of FTX, Genesis is now billions of dollars in debt. This issue has put DCG in a very difficult situation, which may end up declaring bankruptcy and disbanding the Grayscale Bitcoin Trust and GBTC.

  • How will a potential Grayscale collapse affect the price of Bitcoin?

If this pessimistic scenario comes true and Grayscale is forced to sell his 633,000 bitcoins, it is possible that the price of BTC will drop to $8,000 or even less. Of course, this claim is only speculation and it is quite possible that DCG will find a better way out of this predicament under the management of Barry Silbert.

What do you think about this potential crisis in the crypto space? Will the triangle of DCG, Genesis and Grayscale also go bankrupt and bring the price of Bitcoin below $10,000? Share your thoughts with us.

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