Bernstein analysts flag possible liquidation of the Grayscale Bitcoin Trust

The company DCG, facing problems at its subsidiary Genesis Global Capital, could raise capital, divest non-core assets and preserve Grayscale or liquidate GBTC. Analysts at Bernstein came to these conclusions, according to CoinDesk.

One of these scenarios could become a solution for DCG amid difficulties of the crypto-lending platform, whose debt load has reached $1.8 billion, according to the media.

Genesis Global Capital extended the moratorium on withdrawals and told creditors that it would take weeks, not days, to find a solution.

Problems arose after the collapse of FTX. Subsequently the firm attempted to raise emergency financing of $1 billion, but failed, The Wall Street Journal reported.

Bernstein described the liquidation of GBTC as a “nuclear option” and a less preferable restructuring option.

Analysts allowed for DCG to file under Regulation M of the SEC, which would enable, within the framework of the dissolution of the bitcoin-trust, the conversion of the first cryptocurrency into GBTC shares and the coins to be kept for clients. Analysts noted uncertainty about the valuation by GBTC holders of such an option due to custody challenges.

In a capital scenario, funds could be provided by minority investors or a structure led by strategic investors. However, this option was described by experts as not straightforward given the sharp decline in valuations in the market for direct investments since DCG’s last funding round in November 2021. At that time, the group of companies was valued at $10 billion. Since then its position has deteriorated significantly.

The potential deal structure for DCG would be a “comprehensive strategic financing” combining debt and additional equity, according to the study.

Given the size of the loans and illiquid assets, it is quite likely that the balance sheet would affect the liquidation value of equity, the analysts noted. In other words, any deal would require bringing in a strategic partner.

Analysts noted that, thanks to Grayscale’s ability to generate steady cash flows and its status as the largest source of income within DGC, they could decide to sell non-core assets, including CoinDesk, Luno and Foundry.

At the same time, they found it difficult to assess to what extent this would alleviate the capital shortfall and how long it would take.

The best option would be for DCG to pursue a comprehensive group-wide strategic financing. Any deal could entail founder Barry Silbert stepping back from a substantial slice of the pie, the analysts concluded.

In late November, creditors of Genesis announced plans to prevent its bankruptcy.

Ryan Selkis, founder and CEO of Messari, predicted that some creditors of the OTC platform would convert their claims into preferred shares or new DCG debt, as well as warrants. The process should be overseen by an authoritative body.

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