Genesis Petitions Court for Authorization to Divest $1.59B Worth of Assets

Jimmy Aki
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Defunct crypto lender Genesis is seeking court approval to liquidate its Grayscale trust asset (GBTC) and other shares worth $1.59 billion. This move comes at a crucial time, coinciding with Bitcoin ETFs’ remarkable popularity surge.

Genesis GBTC Selloff Will Benefit Creditors and Stakeholders

In a filing submitted on February 3 to the US Bankruptcy Court in the Southern District of New York, Genesis has outlined its intention to divest Grayscale shares.

This includes $1.383 billion in GBTC shares, $165 million in Grayscale Ethereum Trust shares, and Grayscale Ethereum Classic Trust shares valued at $38 million.

The 33-page legal document outlines the rationale behind seeking court approval, emphasizing the benefits of selling and liquidating trust assets.

Genesis anticipates that this action will reduce risks linked to price fluctuations, simplify creditor payments, and ultimately improve overall financial stability.

This request aligns with recent trends, particularly the outflows from GBTC observed in recent weeks.

The trust’s bitcoin holdings have decreased from 617,079.99 BTC on January 12 to the current 478,337.43 BTC.

Simultaneously, GBTC’s assets under management (AUM) have declined from $26.93 billion to an estimated $20.53 billion.

Recognizing the situation’s urgency, Genesis emphasized that the proposed sale of these Grayscale shares is a pivotal strategy. Approved selloffs will provide liquidity, address financial challenges, and meet obligations to creditors.

Importantly, the sale is strategically timed to capitalize on the current enthusiasm surrounding Bitcoin ETFs. Genesis also aims to generate more funds and optimize recovery for stakeholders.

 

Background Dive into Genesis Litigations and Ties with Gemini

The recent development stems from Genesis’s agreement with the U.S. Securities and Exchange Commission (SEC) on January 31, 2024.

As documented in a filing with the Bankruptcy Court in the Southern District of New York, the crypto lender has committed to a $21 million payment to the SEC, marking the conclusion of a year-long lawsuit.

The settlement follows a civil action initiated against both Gemini and Genesis on January 12, 2023.

The SEC had filed charges against both firms for engaging in the unregistered sale of securities to retail investors. This was done through a Gemini crypto lending program.

According to the complaint, in December 2020, Genesis entered into an investment agreement with Gemini customers. This agreement allowed them to lend their crypto assets to Genesis in exchange for promised interest payments.

Commencing in February 2021, Genesis and Gemini introduced the Gemini Earn program to retail investors. This program enabled Gemini Earn investors to entrust their crypto assets to Genesis, with Gemini facilitating the transactions as an agent.

The complaint alleges that Genesis, starting in November 2022, prevented Gemini Earn investors from withdrawing their crypto assets.

This was due to insufficient liquid assets to meet withdrawal demands amid crypto market volatility.

At that time, Genesis held around $900 million in investor assets from 340,000 Gemini Earn participants.

Despite Gemini terminating the program recently, as of today, retail investors in Gemini Earn have yet to withdraw their crypto assets successfully.

In response to Genesis’s order authorization filing, Gemini stated that selling Grayscale shares would facilitate distribution for Earn investors.

Genesis Aims to Claim $1.2B Shares from Gemini

Genesis has also submitted a motion to expedite the relevant deadlines in a distinct legal move. This is aimed at addressing the sale motion during the upcoming bankruptcy court session on Thursday, February 8, 2024.

The GBTC shares constitute the initial collateral Genesis initially transferred to Gemini as part of its commitment to the Earn program.

This collateral also includes shares acquired through Three Arrows Capital‘s bankruptcy proceedings.

Additionally, Genesis is actively pursuing the rightful ownership of 31,180,804 additional shares valued at approximately $1.2 billion.

These shares were pledged to Gemini but remain untransferred, resulting in an unresolved matter before the court.

About Jimmy Aki PRO INVESTOR

Based in the UK, Jimmy is an economic researcher with outstanding hands-on and heads-on experience in Macroeconomic finance analysis, forecasting and planning. He has honed his skills having worked cross-continental as a finance analyst, which gives him inter-cultural experience. He currently has a strong passion for regulation and macroeconomic trends as it allows him peek under the global bonnet to see how the world works.