What will be the impact on Bitcoin of Genesis' massive dumping of GBTC?

A massive new sell-off of bitcoins held in Grayscale’s GBTC ETF looms following the resolution of the case involving the bankrupt company Genesis and the Gemini Exchange.

Victory for Genesis

Genesis has won the case against Gemini regarding the ownership of 31.2 million shares in the GBTC ETF. The New York court’s decision should allow creditors to recover some of their funds. However, we must wait for the resolution of certain motions to get the final word on the tangle.

As a reminder, Genesis filed for bankruptcy last January following the collapse of the investment fund Three Arrows Capital and FTX two months prior. Subsequently, the Gemini exchange – owned by the Winklevoss brothers – filed a lawsuit against its former partner.

The dispute was over the ownership of shares in the GBTC ETF given as collateral for loans granted to Genesis under the “Earn” investment program. Over 100,000 Gemini exchange customers are waiting to see their bitcoins again.

According to the Wall Street Journal, over 31 million shares worth a total of more than $1.3 billion could soon be sold as part of Genesis’s bankruptcy proceedings.

Genesis is also expected to offload its shares in the Ethereum (ETHE) and Ethereum Classic (ETCG) trusts, both managed by the investment fund Grayscale.

“The shares in the GBTC ETF can only be returned in dollars”, said principal analyst Vetle Lund to DL News. “But according to the motion, the goal is to use the proceeds from the GBTC ETF sales to buy bitcoins”.

The reason being that clients of the “Earn” program want to recover their bitcoins, not dollars. This means that “the net effect on bitcoin should be neutral”, Lund believes.

However, we do not know how fast the rotation will occur. It could result in a temporary downward pressure on the BTC/USD pair.

Temporary drop in bitcoin?

Despite this Sword of Damocles, the price of bitcoin has appreciated by more than 10% over the past week. This increase is directly related to the two billion dollars that flowed into ETFs while GBTC outflows have significantly decreased.

We are at 10 consecutive days of net inflows. The recent volumes are astonishing. BlackRock and Fidelity have each added the equivalent of $3 billion to their Bitcoin ETFs in less than a month. Two historic records:

Les ETF #Bitcoin📷 de BlackRock et Fidelity battent des records historiques. Aucun autre ETF n'a attiré autant d'argent au bout d'un seul mois. pic.twitter.com/kDEaUMzEo3

— Nicolas Teterel #FixTheFilters (@NTeterel) February 11, 2024

Fidelity even added its own Bitcoin ETF to its “All-In-One” fund this week. It allows its clients to allocate 1 to 3% of their portfolio to bitcoin.

If such an allocation became the norm, we’re talking about several trillion dollars that will eventually pour into bitcoin. Enough to propel it well beyond $100,000.

The halving scheduled for two months from now should further accelerate things. By mid-April, bitcoin will officially become twice as scarce as gold.

But the path will be volatile. It remains to be seen whether Genesis’s sales will cause a temporary air pocket. We had a demonstration last month with the liquidation of the GBTC ETF shares held by FTX.

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