The collapse of Sam Bankman-Fried’s crypto empire impacted several divisions of the crypto ecosystem. The retrospective liquidity crunch faced by firms made them halt operations. Crypto lender Genesis was one such victim that paused withdrawals due to the “unprecedented” market turmoil.
Post the announcement, Digital Currency Group—the lender’s parent company—clarified that it had no impact on its own operations. However, it is worth noting that Genesis Global served as the liquidity provider for the $6 billion market-capped Grayscale Bitcoin Investment Trust.
On its part, the state of the trust’s share price has considerably deteriorated over the past year. Post shrinking by almost 76% in value, GBTC shares closed at $8.29 on 30 December 2022.
For context, DCG was established in 2015 by billionaire Barry Silbert. Like Grayscale, even Genesis is one of its subsidiaries. In an open letter on Twitter to Silbert, Gemini’s Cameron Winklevoss recently alleged that Genesis owed the exchange’s clients $900 million.
Additionally, Gemini users have filed a request for a class action against Genesis and DCG. This was done in response to the exchange suspending its Earn redemption program because of Genesis freezing its withdrawals.
Untangling The Genesis-Grayscale Strand
So at the moment, users expect Gemini to force Genesis into bankruptcy.
Via its various investment vehicles, Grayscale’s balance sheet comprises a host of assets like Bitcoin [$10.5 billion], Ethereum [$3.69 billion], Ethereum Classic [$190.81 million], Litecoin [$114.13 million], Bitcoin Cash [$30.6 million], etc.
There have been a few claims doing the rounds that if Grayscale is forced to sell its assets to cover Genesis’ creditors, these tokens and their investors would be the most impacted. Even though it seems tangled at the moment, the odds of such a scenario unfolding are quite low.
In mid-November, Grayscale explicitly assured investors that the safety and security of the holdings underlying Grayscale digital asset products remained unaffected.
Furthermore, several from the space have given word that the trust assets are not in danger. Messari founder Ryan Selkis recently assured the same by tweeting,
“Trust assets will not be at risk.“