• 24 June, 2024

Genesis Wins Court Approval for $1.3 Billion GBTC Liquidation to Settle Investor Debts

Genesis Global Holdco has been granted court approval to proceed with the liquidation of its $1.3 billion Grayscale Bitcoin Trust (GBTC) shares, a key move in its strategy to pay back investors. This approval was secured during a February 14 hearing at the United States District Court for the Southern District of New York, presided over by Judge Sean Lane, using a Zoom session for proceedings.

The decision facilitates Genesis’s sale of approximately 35 million GBTC shares and an additional 11 million shares of Grayscale Ethereum Trust (ETHE) and Grayscale Ethereum Classic Trust (ETCG). Collectively, these holdings were valued at around $1.6 billion, according to the firm’s bankruptcy filings. Grayscale had raised a limited objection to this liquidation on February 9, necessitating written consent for such sales, but clarified it did not seek to hinder Genesis’s liquidation efforts.

This court sanction comes after the U.S. Securities and Exchange Commission (SEC) on January 10 approved the conversion of GBTC into a spot Bitcoin exchange-traded fund (ETF), a development Genesis indicated would facilitate the cash redemption of shares. Additionally, on January 31, Genesis announced a settlement with the SEC, agreeing to pay $21 million over allegations of offering and selling unregistered securities via the Gemini Earn program. It further complicated its legal and financial landscape.

Judge Sean Lane’s ruling also encompasses Genesis’s authority to sell off investments in other Grayscale funds like the Ethereum Classic Trust. The court specified that the liquidation should occur in a phased manner, in partnership with a brokerage, ensuring a controlled approach to divesting these assets.

The backdrop to this development includes a contentious legal battle with Gemini over the GBTC shares. Genesis’s agreement with Gemini involved using approximately 60 million GBTC shares as collateral in a lending program, which promised investors profits over time. However, Genesis failed to fulfill its obligations, leading to Gemini’s lawsuit in October 2023 to assert control over the GBTC shares, aimed at securing restitution for investors affected by Genesis’s halted withdrawals in 2022. Despite Gemini’s efforts, the court’s ruling permits Genesis to proceed with the asset liquidation, thereby offering a pathway to satisfy creditor claims.

Amid these developments, there’s heightened interest within the cryptocurrency community regarding the potential market implications of Genesis’s planned GBTC sell-off. The conversion of GBTC to a spot Bitcoin ETF has already led to significant asset withdrawals, prompting speculation about the impact of Genesis’s actions on the broader market.

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