Crypto exchange bankruptcy proceedings have revealed that FTX holds approximately $417 million worth of Grayscale’s Bitcoin Trust (GBTC), according to a recent court filing. This news has led to speculation among analysts about the potential impact on the fund’s price once FTX starts liquidating its holdings. The exchange is currently undergoing bankruptcy and has expressed its intention to return funds to creditors in fiat currency instead of cryptocurrency.
FTX’s strategy for liquidation
To avoid causing a market crash, FTX has devised a careful plan for trading its assets, which include significant holdings of SOL ($1.6 billion), bitcoin ($560 million), and ether ($192 million). In August, the exchange enlisted Galaxy Digital to assist with these sales. Although FTX’s plans did not explicitly mention GBTC, the disclosure is seen as a positive development for those hoping that the fund’s discount to net asset value (NAV) will not be negatively affected by a fire sale from FTX.
GBTC’s current status and future prospects
GBTC is currently the largest crypto fund worldwide, with over $21 billion in assets under management, all in bitcoin. The fund experienced a discount to NAV of up to 50% last year, but this discount has recently narrowed to around 15% due to a resurgence of bullish sentiment towards bitcoin and optimism surrounding Grayscale’s potential approval for a spot exchange-traded fund (ETF) by the U.S. Securities and Exchange Commission (SEC).
Grayscale’s court victory in mid-August, where the SEC’s denial of the ETF conversion was deemed “arbitrary and capricious,” has fueled this optimism. However, a recent lawsuit filed by the State of New York against Grayscale’s parent company, Digital Currency Group, has raised concerns among analysts that the SEC may once again reject the conversion. Digital Currency Group is also the parent company of FTX.
Timeline for FTX’s bankruptcy reorganization
According to Scott Jonhsson of Van Buren Capital, it is unlikely that a reorganization plan for FTX’s bankruptcy will be confirmed before the second quarter of 2024. Speculators are eagerly awaiting the SEC’s decision on spot bitcoin ETFs, which is expected to occur before that time. If GBTC has converted to an ETF by then, any sales of GBTC from the FTX estate should have a similar effect as selling spot bitcoin. However, if GBTC has not converted, FTX estate sales could put pressure on the discount and potentially widen it.
Impact of the SEC’s decision on spot bitcoin ETFs
Sean Farrell of Fundstrat agrees with Jonhsson’s assessment and believes that the SEC’s approval of a spot ETF would benefit FTX creditors and narrow the discount to NAV in GBTC. He also suggests that crypto asset prices would likely surge overall in response to this positive catalyst. However, Farrell sees a low probability of the spot ETF not being approved.
In conclusion, the ongoing crypto exchange bankruptcy of FTX and its holdings of GBTC have raised speculation about the impact on the fund’s price. The outcome will depend on whether GBTC converts to an ETF and the SEC’s decision on spot bitcoin ETFs. Market participants will be closely monitoring these developments to better understand the potential implications for the GBTC fund and the wider cryptocurrency market.
