Bitcoin fell below $16,000 early Monday as worsening liquidity issues raised cryptocurrency concerns following the collapse of Sam Bankman-Fried’s FTX. Unconfirmed social media chatter over the weekend had crypto industry sources including a unit of Digital Currency Groupwondering if the venture capital giant could be the next crypto domino to fall.
DCG owns Grayscale Investments, manager of the world’s largest crypto fund, Grayscale Bitcoin Trust (GBTC). Grayscale holds over 3% of global Bitcoin. DGC also owns crypto broker Genesis Global Trading and digital asset news outlet CoinDesk.
Genesis applied for a $1 billion emergency loan last week, The Wall Street Journal reported Thursday. The company halted withdrawals from its $2.8 billion crypto lending unit, Genesis Global Capital, on Wednesday after confirming liquidity issues following FTX’s bankruptcy filing. The company announced “abnormal withdrawal requests” from clients that exceed its current liquidity.
Two of Genesis’ biggest borrowers were Singapore-based crypto hedge fund Three Arrows Capital and FTX-affiliated trading firm Alameda Research. Three Arrows Capital, Alameda and FTX are all in bankruptcy proceedings. Three Arrows Capital filed in July while Alameda and FTX filed together in November. DCG filed a $1.2 billion lawsuit against Three Arrows in legal proceedings in July after Genesis loaned the company $2.3 billion.
On Nov. 11, DCG gave Genesis a $140 million equity injection as FTX began to slump.
And crypto exchange Gemini suspended withdrawals from interest-bearing accounts following the announcements, as Genesis is the program’s lending partner.
Grayscale Bitcoin Trust Price Decline
Shades of grey announced that its products “continue to operate as usual and recent events have had no impact on the product or operations”. Grayscale indicates that Genesis Global Capital is not a counterparty or service provider for any Grayscale product. In an October 3 SEC filing, Genesis was terminated as an authorized participant of GBTC but continues to serve as its liquidity provider.
GBTC’s grayscale products and underlying assets are held in separate portfolios in cold storage by its custodian Coinbase (PIECE OF MONEY), the company said. However, Grayscale declined to share its full proof of reservations due to “security concerns”. On Friday, he shared a letter from Coinbase Custody Trust confirming the 635,235 Bitcoins in storage.
“To be perfectly clear: The BTC underlying Grayscale Bitcoin Trust is owned by GBTC and GBTC alone,” Grayscale tweeted. Many online investors fear that DCG may start dumping its Bitcoin holdings to bail out Genesis. But Grayscale reassures investors that is not the case.
Meanwhile, Cathie Wood buys GBTC at a discount. Ark Investment Management has purchased more than 315,000 shares of GBTC worth approximately $2.8 million for its Internet ETF Ark Next Generation (ARKW) last Monday, Bloomberg reported.
GBTC stock fell 5.5% on Monday morning to $7.85 per share. The price has fallen around 78% so far this year as Bitcoin crashes with the wave of crypto bankruptcies. Shares are well below their all-time highs near $58 from February 2021, before the current crypto ice age.
Bitcoin, meanwhile, fell below $16,100 from its low of $21,000 in early November following the collapse of FTX.
The FTX Collapse Explained
The FTX exchange has thrown the crypto markets into turmoil for the past two weeks after filing for Chapter 11 bankruptcy on November 11. Founder and CEO Sam Bankman-Fried resigned and was replaced by John J. Ray III. The former Enron cleanup manager slammed SBF saying“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of reliable financial information.”
The fourth-largest crypto exchange by volume has faced a massive liquidity crunch after revelations that its native FTT token made up the majority of sister trading firm Alameda Research’s balance sheet. Crypto exchange Binance has announced that it will liquidate its FTT holdings on November 6, triggering over $6 billion in FTX withdrawals in 72 hours.
Unknown publicly at the time, Alameda Research owed FTX approximately $10 billion in loans consisting of customer deposits. Meanwhile, FTX invested user funds in various crypto projects and lesser-known tokens, some of which were Bankman-Fried’s own initiatives, compounding liquidity issues.
When FTX crashed, Bitcoin fell nearly $15,800 from over $21,200 in four days, dragging cryptocurrency prices down with it. Investors transferred more than $3 billion in Bitcoin from exchanges to personal wallets during the week of FTX’s bankruptcy, according to Glassnode data compiled by CoinTelegraph. Bitcoin recovered around $16,500 by November 17, but fell again as new liquidity issues emerged. The prices of major cryptocurrencies are still down 20% or more since FTX’s liquidity issues began on November 5.
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