Bitcoin Drops As Another Leader Collapses; This Ball Gets Funded

Bitcoin fell below $16,000 on Monday morning as worsening liquidity problems following the collapse of Sam Bankman-Fried’s FTX fueled concerns about the cryptocurrency. Unverified social media chatter Over the weekend, cryptocurrency industry sources, including a division of the Digital Currency Group, questioned whether the venture capital giant could be the next crypto domino to fall.


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

Genesis requested a $1 billion emergency loan last week, the Wall Street Journal reported Thursday. On Wednesday, the firm halted underwriting for its $2.8 billion cryptocurrency lending unit Genesis Global Capital after FTX confirmed liquidity problems following its bankruptcy filing. The announced the company “abnormal cash demands” from customers who exceed their current liquidity.

Two of Genesis’ biggest borrowers were Singapore-based crypto hedge fund Three Arrows Capital and FTX-affiliated trading firm Alameda Research. Three Arrows Capital, Alameda and FTX are in bankruptcy proceedings. Three Arrows Capital came together in July, and Alameda and FTX came together in November. DCG sued Three Arrows for $1.2 billion in a July lawsuit after Genesis loaned the firm $2.3 billion.

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

And the Gemini cryptocurrency stopped withdrawing money from interest-bearing accounts as a result of the announcements, because Genesis is a lending partner of the program.

Grayscale Bitcoin Trust Price Drops

Grayscale announced that its products “continue to operate as usual and the recent events have had no impact on products or operations.” Grayscale says Genesis Global Capital is not a counterparty or service provider for any Grayscale product. As of October 3, in an SEC filing, Genesis was terminated as an authorized participant of GBTC, but continues to serve as its liquidity provider.

Grayscale products and underlying assets of GBTC are stored in separate wallets in cold storage by its custodian. Coinbase (COIN), the company said. However, Grayscale declined to share full proof of reserves due to “security concerns.” On Friday, Coinbase shared a letter from the Custody Trust confirming 635,235 bitcoins in storage.

“To be absolutely clear: the BTC underlying the Grayscale Bitcoin Trust is owned by GBTC and GBTC alone,” Grayscale tweeted. Many investors on the Internet are concerned that DCG may start offloading their Bitcoin holdings to save Genesis. But Grayscale assures 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 last Monday for the Ark Next Generation Internet ETF (ARKW), worth about $2.8 million, Bloomberg reports.

GBTC shares fell 5.5% to $7.85 per share on Monday. Bitcoin has fallen by nearly 78% so far this year as it has been hit by a wave of cryptocurrency bankruptcies. Shares are well below their all-time high near $58 since February 2021, before the current crypto-freeze period.

Bitcoin, on the other hand, has fallen from $21,000 in early November to below $16,100 following the collapse of FTX.

FTX collapse explained

After the FTX exchange filed for Chapter 11 bankruptcy on November 11th, it has thrown the cryptocurrency markets into turmoil for the past two weeks. Founder and CEO Sam Bankman-Fried resigned and was replaced by John J. Ray III. A former Enron cleanup executive criticized the SBF, saying, “Never in my career have I seen such a complete failure of corporate control and such a complete absence of reliable financial information.”

The fourth largest cryptocurrency exchange by volume faced a major liquidity crisis after it was revealed that its native FTT token made up the majority of the balance sheet of sister trading firm Alameda Research. Cryptocurrency exchange Binance announced on November 6 that it would liquidate its FTT holdings, prompting more than $6 billion in withdrawals from FTX within 72 hours.

Unknown to the public at the time, Alameda Research owed FTX about $10 billion in customer deposits. Meanwhile, FTX invested user funds in various crypto projects and lesser-known tokens – some of which were Bankman-Fried’s own initiatives – further exacerbating liquidity problems.

As FTX collapsed, Bitcoin also dragged cryptocurrency prices down from above $21,200 to close to $15,800 in four days. Glassnode data compiled by CoinTelegraph shows that investors moved more than $3 billion in Bitcoin from exchanges to personal wallets in the week of FTX’s bankruptcy. Bitcoin recovered to around $16,500 on November 17, but fell again as more liquidity problems emerged. Major cryptocurrency prices are still down 20% or more since FTX’s liquidity problems began on November 5th.

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