Grayscale Investments’ newly converted spot Bitcoin exchange-traded fund (ETF) is set to see even more outflows, as bankrupt crypto lender Genesis seeks approval to sell nearly $1.4 billion worth of shares in the Grayscale Bitcoin Trust (GBTC).

In a Jan. 2 filing with a U.S. bankruptcy court in the Southern District of New York, Genesis sought permission to sell a total of $1.38 billion in GBTC shares, $169 million in the Grayscale Ethereum Trust (ETHE) and $38 million in the Grayscale Ethereum Classic Trust (ETCG).

Some of the GBTC shares made up the initial collateral that Genesis pledged to Gemini as part of the Gemini Earn program in August 2022. However, in November 2022, the two parties amended that agreement to extend its term. 

Later that month, Gemini sent a notice to Genesis saying that it had foreclosed on the initial GBTC shares promised through a private sale. A foreclosure takes place when a borrower has defaulted on their financial obligations, leading the lender to repossess the assets in question.

Genesis has contested whether Gemini’s foreclosure was within the law and noted that the rights to these shares are currently still a matter of dispute in court. 

Meanwhile, Gemini published a statement on its website stating that Genesis’ proposed sale of trust assets was “an important step forward following the approval of the Grayscale Bitcoin Trust (GBTC) as an exchange-traded product (ETP) .”

Last week, Genesis agreed to pay the U.S. Securities and Exchange Commission (SEC) $21 million to settle a lawsuit that the regulator filed against the firm a week before it filed for bankruptcy protection. The SEC alleged that Gemini and Genesis offered unregistered securities through the Gemini Earn program.

“The claim would be subordinated to all other allowed administrative expenses and secured, priority, and general unsecured claims, meaning the SEC will not receive a distribution from the Genesis estate unless all other creditors are first made whole,” said Gemini, calling the SEC’s lawsuit “ill-conceived.”