The crypto market has seen extreme selling pressure over the past week, with Bitcoin hitting a new yearly low below its current levels. The number one crypto by market capitalization is entangled in the collapse of crypto exchange FTX and its subsequent fallout.
As of this writing, Bitcoin (BTC) is trading at $16,650. Over the past 24 hours, the cryptocurrency is recording sideways price action with 5% in the previous week. The other top 10 cryptocurrencies in the market are following a similar trajectory and trending lower.
Is the Bitcoin market likely to fall further?
During the collapse of FTX, many companies had to file for bankruptcy. The contagion is spreading through the fledgling industry, which could affect major players, including the Grayscale Bitcoin Trust (GBTC), operated by Digital Currency Group (DGC).
The FTX fallout has impacted one of DGC’s subsidiaries, crypto lender Genesis. Yesterday, this company halted new withdrawal requests from its clients, citing a liquidity crisis triggered by the fall of FTX. The company declared:
The failure of 3AC had a negative impact on the liquidity and duration profiles of our lending entity Genesis Global Capital. Since then, we have reduced portfolio risk and strengthened our liquidity profile and the quality of our collateral (…). FTX has created unprecedented turbulence in the market, resulting in abnormal withdrawal requests that have exceeded our current liquidity.
Genesis parent company DCG says it has not been affected by recent events. However, there is speculation of a possible sellout event within the investment firm and its other subsidiaries, including GBTC.
One of the largest Bitcoin holders in the world 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 see new lows. According to rumors share by a member of the crypto community:
We are hearing semi-credible rumors that Genesis may be in credit trouble (…). We are aware that Grayscale controls GBTC and ETHE, not Genesis. DCG (the parent company of Genesis and Grayscale) backs Genesis, and dissolution of trusts may be necessary if there is a solvency issue and 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 company 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 buyout for Genesis to meet liquidity needs.” The firm noted:
With all the SEC opposition to GBTC this year, we certainly don’t expect that to happen anytime soon. On the bright side, this also means a low probability of a strong single BTC sell pressure.