The crypto industry has seen massive selling pressure in the past 10 days, with Bitcoin recording a new yearly low below its current levels. The biggest crypto by market cap is currently entangled in the collapse of the FTX crypto exchange and its consequent fallout.
At the time of publication, Bitcoin is consolidating near $16,600 awaiting the next price action. In the past 24 hours, the crypto recorded sideways price action with a 5% in the past week. Other cryptos in the top 10 by market capitalization are following a similar trajectory and are trending gradually to the downside.
Bitcoin Market Risking More Downside Movement?
In the collapse of the FTX crypto exchange, many firms have had to declare bankruptcy. Contagion seems to be spreading across the budding sector, which may affect major players, including the Grayscale Bitcoin Trust (GBTC), which is run by Digital Currency Group (DGC).
The FTX fallout affected one of DGC’s subsidiaries, crypto lender Genesis. On November 17, this firm suspended new withdrawal requests from its clients, citing a liquidity crunch that was triggered by FTX’s downfall. The firm stated:
“The default of 3AC negatively impacted the liquidity and duration profiles of our lending entity Genesis Global Capital. Since then, we have been de-risking the book and shoring up our liquidity profile and the quality of our collateral (…). FTX has created unprecedented market turmoil, resulting in abnormal withdrawal requests which have exceeded our current liquidity.”
Genesis’s parent firm DCG alleges that it was unaffected by recent events in the market. Nonetheless, there are some speculations about a possible capitulation event within the investment company and its other subsidiaries, including the GBTC.
One of the biggest Bitcoin holders in the world with more than 600,000 BTC valued at more than $13 billion and 3 million ETH valued at $3.7 billion, in case Grayscale or DCG become forced sellers, the crypto market will likely plummet to fresh lows. Based on rumors shared by a member of the cryptocurrency community:
“We’re hearing semi-credible rumors that Genesis may be having solvency issues (…). We are aware that Grayscale controls GBTC and ETHE, not Genesis. DCG (the parent company of Genesis and Grayscale) is backstopping Genesis, and dissolving the trusts may be necessary if there is a solvency issue, and if it is big enough.”
Bitcoin Unlikely To Keep Dropping
Another report from the trading desk QCP Capital alleges that Grayscale is unexpected to liquidate its Bitcoin holdings. The company operates under the U.S. Securities and Exchange Commission (SEC) supervision.
QCP Capital is convinced that the SEC is unlikely to allow a “one-off redemption for Genesis to meet liquidity needs.” The company noted:
“With all of the SEC’s opposition to GBTC this year, we certainly don’t expect this to happen anytime soon. On the bright side, this also means a low chance of a large one-off BTC selling pressure from this.”