Here’s what Reg M needs for Genesis, DCG and Bitcoin

Rumors began circulating about the possible bankruptcy of Digital Currency Group (DCG) after Genesis Trading’s lending arm went out of service last week. Of particular note are rumors that Grayscale and its Bitcoin Trust (GBTC) and Ethereum Trust (ETHE) may be forced into bankruptcy.

The crypto community is now waiting for good news from Genesis and DCG. As revealed late yesterday afternoon (US East Coast), Genesis spent the weekend in a fundraising effort that fell through.

Bloomberg reports that Genesis is now warning of possible bankruptcy as post-FTX fundraising has stalled. A representative for Genesis said it has “no immediate plans for bankruptcy.”

In an emailed statement, Genesis said their goal was to “consensually resolve the current situation without filing for bankruptcy. Genesis continues to have constructive conversations with its creditors.”

A little later, the WSJ reported that Genesis approached cryptocurrency exchanges Binance and Apollo Global Management to bid on the loan books. However, Binance has already declined, fearing some of the Genesis deals could lead to conflicts of interest.

Additionally, journalist Frank Chaparro Have learned Genesis has lowered its target from $1 billion to $500 million, according to an anonymous source.

What options are there for tables in genesis?

As Bitcoinist reported yesterday, the DCG may have to intervene to save Genesis. To do so, DCG would need to sell most of its liquid assets and venture investments.

However, there are rumors that DCG borrowed bad debts to buy GBTC. As Cinneamhain Ventures’ Adam Cochran explained, this would make things even worse for Genesis.

Hmm, my analysis didn’t take into account the possibility that bad debts were lent to dcg and used to buy GBTC. This is one of the few scenarios that makes things even worse. https://t.co/laikAfTzOu

— Adam Cochran (adamscochran.eth) (@adamscochran) November 21, 2022

One of the rumored options right now is Grayscale’s Reg M of trust. One of his biggest proponents of this solution is Ryan Selkis, the founder of Messari.

Reg M will allow GBTC and ETHE holders to exchange their underlying assets at a 1:1 ratio. So, at the current discount of about 40% on his GBTC, an investor would receive $1 BTC for his 60 cents GBTC. DCG and Genesis can then use this money to pay lenders and avoid bankruptcy.

What makes this option explosive is that DCG is the largest owner of Grayscale Bitcoin Trust (GBTC). Other holders can buy back his GBTC but are not required to sell it. However, the steep discounts to spot prices offer tremendous arbitrage opportunities.

This is also why rumors surfaced yesterday that Grayscale may have bought more GBTC after the discount rate dropped from -50% to -43%. I don’t know yet if this is true. It’s also important to note that redemptions may not occur for several weeks.

Can this explain the selling pressure on GBTC?

— Ryan Serkis 🥷 (@twobitidiot) November 21, 2022

But Will Clemente, co-founder of Reflexivity Research, warned “A lot of people who hold GBTC do because they don’t have access to BTC spots for compliance purposes.

Ryan Serkis, on the other hand, claims: [the Bitcoins] If the SEC approves a physical redemption, it will not come to market. ‘” Selkis continued on his Twitter account. $10 billion. If $5 billion is sold, he could be a 5-10% hit in the temporary spot market. But it bounces faster and removes structural black clouds. ”

With that in mind, Serkis impulse DCG CEO Barry Silbert will “do the right thing” and approach the SEC for Reg M relief given the circumstances.

No ETFs have occurred. The Trust’s sponsor and his AP must do the right thing with investors.

Given that Coinbase is a custodian, in-kind redemption is easy to execute, and given the extreme damage done to investors and the contagion GBTC continues to cause as a toxic collateral, the SEC will sympathize with your request.

do the right thing!

One of the main sources of recent rumors is ArchPublic co-founder Andrew Parish. He now claims Wednesday could be Genesis’ “Drop Dead” date.

Update: The “settlement” date for Genesis’ bankruptcy decision is Wednesday.

An undisclosed $1.1 billion promissory note from Genesis to DCG still exists.

Genesis’ liquidity deficit and bad debt losses still exist.

Reg M redemption in grayscale is still under consideration.

— Andrew (@AP_ArchPublic) November 21, 2022

Bitcoin is suffering from mounting selling pressure due to rumors about its impact on GBTC. At press time, BTC was nearing a new bear market low of $15,478 since yesterday.