Crypto Market Unaffected By Genesis GBTC Liquidation, Says Coinbase

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Crypto Market Unaffected By Genesis GBTC Liquidation, Says Coinbase

Cryptocurrency exchange Coinbase anticipates the crypto market remaining unaffected by the bankruptcy of Genesis, a crypto lender holding substantial Grayscale Bitcoin Trust shares. Genesis, having incurred losses exceeding $5 billion in liabilities, including debts owed to creditors and outstanding loans, filed for bankruptcy on January 20, 2023. Genesis petitioned the court to sell its $1.3 billion GBTC shares, seeking creditor repayment.

GBTC is a trust that holds Bitcoin and allows investors to gain exposure to the cryptocurrency without owning it directly. GBTC shares trade on the secondary market at a premium or discount to the underlying Bitcoin’s net asset value (NAV). On Feb. 14, a bankruptcy judge granted Genesis the permission to liquidate its GBTC shares, either by converting them to Bitcoin or selling them for cash.

Genesis has been approved to sell its GBTC shares, a move that comes when the latter faces heightened competition from spot Bitcoin ETFs, which are more effective and clearer than GBTC. On Jan. 10th, the U.S. Securities and Exchange Commission (SEC) gave the first spot Bitcoin ETF the green light. Quite a few additional spot Bitcoin ETFs have since been initiated or applied for the attraction of billions in revenue streams.

Consequently, the GBTC has witnessed outflows worth more than $5b since January as investors moved to cheaper and more liquid ETFs. Consequently, GBTC has been trading at a consistent discount to its NAV, implying that investors are willing to sell GBTC shares for less than the value of Bitcoin

Coinbase Insights On Genesis Sell-off

Coinbase, however, argued in its weekly report that the crypto market would remain stable irrespective of Genesis’ GBTC sell-off, which could exert additional downward pressure on Bitcoin’s price because the majority of the funds from liquidation will stay within the crypto ecosystem.

Our view is that much of these funds will likely remain within the crypto ecosystem, contributing to a neutral overall effect in the market, Coinbase said.

Coinbase explained that depending on their choice, Genesis has a choice between distributing either Bitcoin or cash to its creditors. If Genesis changes GBTC shares to Bitcoin, then it will have to buy Bitcoin from the market, thus increasing the demand and value of cryptocurrency. In case Genesis sells GBTC shares for money, it will also be obliged to sell Bitcoin to the market, which may reduce the supply of the cryptocurrency and, hence, its price.

Coinbase also observed that either way, those who will get bitcoin or cash will probably invest them again into this industry through purchasing other cryptocurrencies or lending staking to various platforms. Thus, the company expects that Genesis’ GBTC liquidation will not impact the cryptocurrency market.

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