Grayscale Declares 'Business as Usual' Despite Sister Company Genesis Global Capital Suspending Withdrawals
Digital asset manager Grayscale Investments is seeking to reassure investors they will not be affected by Genesis Global Capital suspending withdrawals in the wake of FTX's collapse.
Genesis Global Capital, the lending arm of crypto investment bank Genesis Global Trading, announced the suspension on Wednesday in response to "extreme market dislocation and loss of industry confidence caused by the FTX implosion," according to Amanda Cowie, vice president of communications and marketing at Digital Currency Group (DCG), the parent company of Grayscale, Genesis and also CoinDesk.
Grayscale announced via Twitter on Wednesday that "Genesis Global Capital is not a counterparty or service provider for any Grayscale product."
Today Genesis Global Capital, a subsidiary of Grayscale’s affiliate, Genesis Global Trading, announced that it is temporarily suspending redemptions and new loan originations. Genesis Global Capital is not a counterparty or service provider for any Grayscale product. As a result:— Grayscale (@Grayscale) November 16, 2022
"Grayscale products continue to operate business as usual, and recent events have had no impact on product operations," it added.
The digital manager's flagship product, the Grayscale Bitcoin Trust (GBTC), a fund in which investors buy shares in order to gain exposure to bitcoin, was trading at a 39.8% discount to net asset value (NAV) Tuesday.
The discount has narrowed slightly to 37.1% on Tuesday, thanks in part to Ark Investment Management purchasing 315,259 shares in the investment vehicle, its first such purchase since July 2021. But the discount widened on Wednesday with GBTC falling around 7% and bitcoin relatively flat over the last hour.
Fears of spillover from Genesis' plight are likely to continue, despite Grayscale's claims.
"Genesis' balance sheet bad debt would need immediate recapitalization from DCG," Bernstein Research analyst Gautam Chhugani wrote in a note Wednesday.
"It is unclear if DCG would have the free reserves to top up Genesis, given the size of Genesis' balance sheet," Chhugani wrote. "And by implication, if DCG would have to unwind its liquid GBTC product, [it] would create challenges for a whole set of market participants intertwined with GBTC as collateral."
Last week, Genesis disclosed that its derivatives unit had about $175 million in locked funds in its FTX trading account. As a result, DCG opted to strengthen Genesis’ balance sheet with an equity infusion of $140 million.