Bankruptcy Court Rules Genesis Owns Disputed Bitcoin Trust Shares in Gemini Dispute

News | February 15, 2024 By:

On Wednesday, February 7, 2024, the United States Bankruptcy Court for the Southern District of New York issued a memorandum of decision in the adversary proceeding between Gemini Trust Company and Genesis Global Capital. The case involves a dispute over shares of the Grayscale Bitcoin Trust (GBTC) held as collateral.

GBTC is an investment vehicle that allows investors to gain exposure to Bitcoin prices. It holds Bitcoin in trust for its shareholders. Gemini operates a cryptocurrency trading platform and ran a program called Gemini Earn, where users can lend their digital assets to Genesis Global Capital in exchange for interest. These loans were governed by individual master loan agreements.

In August 2022, amidst turmoil in crypto markets, Genesis sought to reassure Gemini about its financial status. As a result, the companies entered a security agreement where Genesis pledged over 30 million shares of GBTC to Gemini as collateral for the loans. They later amended the agreement, requiring Genesis’s parent Digital Currency Group to deliver over 31 million additional GBTC shares that would then be transferred to Gemini. However, Genesis never ended up transferring these “additional shares” to Gemini.

Shortly after, Genesis suspended redemptions through the Gemini Earn program. Gemini then purported to foreclose on the original GBTC collateral. Genesis and its affiliates later filed for bankruptcy. Gemini subsequently filed an adversary proceeding, asserting it had a secured interest in the additional GBTC shares based on the security agreement amendments. It argued the shares were not property of the bankruptcy estates and sought a declaratory judgment.

In its decision, the bankruptcy court granted Genesis’s motion to dismiss Gemini’s claims relating to the additional GBTC shares. Looking at the clear terms of the contracts, the court found they unambiguously required the shares to be transferred by Genesis to Gemini to be valid collateral. Since this never occurred, Gemini did not have a secured interest. The court also rejected Gemini’s argument to impose a constructive trust. The decision signifies Genesis and its affiliates will retain control over the valuable additional GBTC shares as property of their bankruptcy estates.

Please contact BlockTribune for access to a copy of this filing.