Bitcoin falls as another leader falters; This Top Fund is buying

Bitcoin fell below $16,000 early Monday as worsening liquidity issues raised concerns for the cryptocurrency following the Sam Bankman-Fried FTX crash. Unconfirmed social media chatter Over the weekend, crypto industry sources, including a unit at the Digital Currency Group, wondered whether the venture capital giant could be the next crypto domino to fall.


DCG owns Grayscale Investments, manager of the world’s largest cryptocurrency fund, Grayscale Bitcoin Trust (GBTC). Grayscale holds over 3% of the world’s Bitcoin. DGC also owns cryptocurrency brokerage Genesis Global Trading and digital asset news agency CoinDesk.

Genesis filed for a $1 billion emergency loan last week, the Wall Street Journal reported on Thursday. The firm halted withdrawals for its $2.8 billion cryptocurrency lending unit, Genesis Global Capital, on Wednesday after it confirmed liquidity problems following FTX’s bankruptcy filing. The company announced “abnormal withdrawal requests” from clients that exceed your current liquidity.

Two of Genesis’ largest borrowers were Singapore-based cryptocurrency 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 July court proceedings after Genesis lent the company $2.3 billion.

On Nov. 11, DCG gave Genesis a $140 million stock infusion as FTX began to slump.

And cryptocurrency exchange Gemini has suspended withdrawals to interest-bearing accounts following the announcements, as Genesis is the lending partner for the program.

Grayscale Bitcoin Trust price drop

Grayscale announced that its products “are continuing to operate as usual and recent events have not had any impact on the product or operations.” Grayscale states that Genesis Global Capital is not a counterparty or service provider to any Grayscale product. In an Oct. 3 filing with the SEC, Genesis was terminated as an authorized participant of GBTC but continues to act as a liquidity provider.

GBTC’s grayscale products and underlying assets are held in segregated portfolios in cold storage by its custodian Coin basis (COIN), the company said. However, Grayscale declined to share its full proof of reserves due to “security concerns.” On Friday, he shared a letter from Coinbase Custody Trust confirming the 635,235 Bitcoins on deposit.

“To be perfectly clear: The BTC underlying Grayscale Bitcoin Trust is owned by GBTC and GBTC alone,” Grayscale tweeted. Many online investors are concerned that DCG may start offloading its Bitcoin holdings to bail out Genesis. But Grayscale reassures investors that this is not the case.

Meanwhile, Cathie Wood is buying GBTC at a discount. Ark Investment management bought more than 315,000 shares of GBTC worth about $2.8 million on Monday for its Ark Next Generation Internet ETF (ARKW), Bloomberg reported.

GBTC shares fell 5.5% early Monday to $7.85 a share. The price has tumbled about 78% so far this year as Bitcoin tumbles amid the wave of cryptocurrency bankruptcies. Shares are well below their all-time highs near $58 from February 2021, before the current crypto ice age.

Bitcoin, meanwhile, has dipped below $16,100 since its low of $21,000 in early November following the FTX bust.

FTX collapse explained

Exchange FTX has thrown the cryptocurrency markets into turmoil over the past two weeks after filing for Chapter 11 bankruptcy on Nov. 11. Founder and CEO Sam Bankman-Fried stepped down and was replaced by John J. Ray III. The former Enron cleanup executive lambasted 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 cryptocurrency exchange by volume faced a massive cash crunch after revelations that its native FTT token made up the majority of sister trading firm Alameda Research’s balance sheet. Cryptocurrency exchange Binance announced it would liquidate its FTT holdings on Nov. 6, prompting more than $6 billion in FTX withdrawals within 72 hours.

Publicly unknown at the time, Alameda Research owed FTX approximately $10 billion in loans made up of customer deposits. Meanwhile, FTX invested user funds in various lesser-known crypto and token projects, some of which were Bankman-Fried’s own ventures, exacerbating liquidity problems.

When FTX crashed, Bitcoin dropped close to $15,800 from over $21,200 in four days, dragging cryptocurrency prices with it. Investors moved more than $3 billion worth of Bitcoin from exchanges to personal wallets in the week of FTX’s bankruptcy, Glassnode data compiled by CoinTelegraph shows. Bitcoin recovered about $16,500 as of Nov. 17 but fell again as more liquidity issues emerged. Major cryptocurrency prices are still down 20% or more since FTX liquidity issuance began on Nov. 5.

Do you want to receive market information directly in your inbox? Sign up for IBD’s new daily newsletter by clicking on the image below.

You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison


Cryptocurrency prices and news

What is Cryptocurrency?

Get stock listings, stock valuations and more with IBD Digital

Find stocks to buy and watch with the IBD Ranking

Identify the basics and buy points with MarketSmith pattern recognition

Leave a Reply

%d bloggers like this: