Bernstein says rescuing the Grayscale Bitcoin Trust will come at a cost to the cryptocurrency group. Bernstein also notes that a viable deal could involve a large minority partner or an acquisition-like structure led by more strategic partners. By the way, it does not exclude the liquidation scenario either.
Bernstein sees three options for Bitcoin platform
In a research report on Thursday, Bernstein notes that Genesis’ continued withdrawal freeze continues to put pressure on the crypto markets. He said that it would take weeks instead of days to find a solution to Genesis’s creditors, as you follow on Kriptokoin.com.
Parent company Digital Currency Group (DCG) owes Genesis approximately $1.7 billion. Bernstein sees three potential approaches to DCG. The first of these is capital increase. Second, they sell non-strategic assets. The latter could save the digital currency asset manager Grayscale or dissolve the Grayscale Bitcoin Trust (GBTC).
According to the report, the ‘nuclear option’ and the least preferred option for DCG would be the dissolution of GBTC. DCG can apply for Reg M assistance and, upon liquidation, can be exchanged for GBTC shares instead of Bitcoin (BTC) sold on the open market. This causes the least market impact, leaving GBTC holders with Bitcoin instead. However, it is unclear whether GBTC holders want to own Bitcoin, according to the report. Because many people bought the fund to avoid crypto storage hassles.
What would be the best potential deal structure?
Valuations in the private market have dropped significantly since DCG’s last fundraising in November 2021. Therefore, Bernstein notes in the note that raising capital will be difficult. Also, with a $2 billion loan, the company’s balance sheet position would be much worse. Therefore, a potential DCG deal structure would be ‘comprehensive strategic financing’ that uses a combination of debt and fresh equity to finance loans.
Bernstein says that given the size of loans and illiquid assets, the state of the balance sheet is now likely to put pressure on equity value. This suggests that any deal will require the involvement of a more strategic partner. Analysts Gautam Chhugani and Manas Agrawal comment:
The viable deal could be somewhere between a large minority partner or a DCG-like buyout structure led by more strategic partners, possibly financial institutions looking to enter the industry.
Meanwhile, it’s worth noting that Grayscale is the ‘crown jewel’ and the largest revenue generator in the group. That’s why, Bernstein says, founders may decide to sell non-essential assets, including CoinDesk, Luno, Foundry or other venture assets. However, it is not clear whether this will close the balance sheet gap or whether it will be fast enough. The best option is for DCG to work on a comprehensive, strategic financing of the group. It’s also possible that any deal will require founder Barry Silbert to ‘give up a large part of the pie’.
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