There is currently sentiment on Twitter against the next crash candidate in the crypto space. Grayscale Bitcoin Trust (GBTC), the world’s largest cryptocurrency fund, has become caught up in the FTX crypto aftermath. The share price of the $10.5bn GBTC, which owns 3.5% of the world’s bitcoin, has plummeted to a 39% discount to the NAV. Troubled crypto lender BlockFi, GBTC‘s second-largest shareholder, allegedly prepares for bankruptcy!
The blowout means GBTC investors have suffered an 83% loss since bitcoin peaked in November 2021, even outstripping the 74% implosion of the BTC price. Crypto investors are increasingly reacting in panic. They fear a continuation of the domino effect of bankruptcies because of the mutual interdependencies of large crypto companies.
The Genesis Trading Troubles
The panic wave reached GBTC on Wednesday when crypto broker Genesis Trading, which originated more than $50bn of loans last year, suspended redemptions and originations of loans at its lending arm after suffering financial contagion from the failure of Three Arrows Capital (3AC), the Singapore-based crypto hedge fund that filed for bankruptcy in July.
The Looming BlockFi Bankruptcy
Genesis is a subsidiary of Digital Currency Group, the largest GBTC shareholder with a 4.1% stake, or 28.2 million shares. BlockFi, a crypto lender that ran into troubles with the FTX collapse, is the second-largest shareholder, with 2.9%. BlockFi had to suspend withdrawals of customer deposits due to its “significant exposure” to FTX. According to a WSJ report, BlockFi is preparing for a possible Chapter 11 bankruptcy.
The Fire Sale Opportunity?
Ark Investment Management, the third-largest GBTC shareholder with a near-1% stake, bought a further $2.8 million GBTC shares. Ark chief executive Cathie Wood said GBTC was trading at a “fire sale” price given the possibility of it being converted into an ETF at some point.
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