The crypto market has seen extreme selling pressure over the past week, with Bitcoin posting a new yearly low below its current levels. The number one cryptocurrency by market capitalization is embroiled in the collapse of the FTX cryptocurrency exchange and its subsequent consequences.
As of this writing, Bitcoin (BTC) is trading at $16,650. In the last 24 hours, the cryptocurrency is recording a sideways price action with 5% in the previous week. Other cryptocurrencies in the top 10 of the market are following a similar trajectory and are trending lower.
Is the Bitcoin market at risk of further declines?
In the FTX collapse, many companies have had to declare bankruptcy. Contagion is spreading through the infant industry, potentially affecting major players including Grayscale Bitcoin Trust (GBTC), run by Digital Currency Group (DGC).
The fallout from FTX affected one of DGC’s subsidiaries, crypto lender Genesis. Yesterday, this company stopped new withdrawal requests from its clients, citing a liquidity crisis brought on by the FTX crash. The company fixed:
The 3AC default adversely affected the liquidity and duration profiles of our Genesis Global Capital lender. Since then, we have been reducing book risk and strengthening our liquidity profile and the quality of our collateral (…). FTX has created unprecedented market turmoil, resulting in abnormal withdrawal requests that have exceeded our current liquidity.
Genesis’s parent company, DCG, claims it was not affected by recent events. However, there is speculation about a possible capitulation event within the investment firm and its other subsidiaries, including GBTC.
One of the world’s largest Bitcoin holders with over 600,000 BTC valued at over $13 billion and 3 million ETH valued at $3.7 billion, if Grayscale or DCG become forced sellers, the crypto market is likely to experience new lows. according to rumors shared by a member of the crypto community:
We are hearing unbelievable rumors that Génesis may be having solvency problems (…). We are aware that Grayscale controls GBTC and ETHE, not Genesis. DCG (the parent company of Genesis and Grayscale) backs Genesis, and the trusts may need to be dissolved if there is a solvency problem and if it is large enough.
Bitcoin is unlikely to continue falling
A separate report from trading desk QCP Capital claims that Grayscale is unlikely to liquidate its Bitcoin holdings. The firm operates under the supervision of the United States Securities and Exchange Commission (SEC).
QCP Capital believes the SEC is unlikely to authorize a “one-time exchange for Genesis to meet liquidity needs.” The firm noted:
With all the SEC opposition to GBTC this year, we certainly don’t expect this to happen any time soon. On the plus side, this also means a low probability of a large BTC one-sell pressure from this.