NEW YORK, Feb 14 (Reuters) - Bankrupt crypto lender Genesis Global on Wednesday received permission from a U.S. court to sell about $1.6 billion in Grayscale cryptocurrency trust shares as part of its effort to repay creditors.

U.S. Bankruptcy Judge Sean Lane approved Genesis's request at court hearing in White Plains, New York, allowing the company to monetize its shares of Grayscale Bitcoin Trust, Grayscale Ethereum Trust, and Grayscale Ethereum Classic Trust.

Genesis holds about 35 million shares in the bitcoin trust, worth about $1.38 billion, and ethereum trust shares worth about $207 million, according to court filings. It told the judge it needs to sell those shares to repay customers and avoid paying $1.9 million in monthly fees on its trust agreements.

Lane overruled an objection from Digital Currency Group (DCG), Genesis's parent company, which had warned that the sale might be premature if Genesis fails to win court approval of its overall bankruptcy plan.

Genesis is moving ahead with a liquidation plan that would shut down the company and repay customers in cash or cryptocurrency, depending on the types of currency they had deposited. The company reached settlements earlier this month with the U.S. Securities & Exchange Commission and New York Attorney General Letitia James, resolving their objections to its bankruptcy plan.

Both the SEC and New York Attorney General agreed to prioritize Genesis customer repayments in their settlements. The SEC will receive a $21 million fine if Genesis has any money left over after repaying customers, and James agreed to use any money recovered from the bankruptcy to help creditors that were allegedly defrauded by Genesis assurances that their deposits were safe.

DCG has argued that the Genesis bankruptcy plan should not be approved because it overpays customers and creditors at the expense of DCG's recovery as an equity owner.

DCG says that U.S. bankruptcy law requires Genesis to value customers' crypto holdings based on their value on the date that Genesis filed for bankruptcy in January 2023. Genesis customers should not be paid more than the value of their crypto holdings at that date, but the proposed plan allows "additional payouts" to account for the rising price of assets like bitcoin and ethereum, according to DCG.

Lane will consider approving Genesis's bankruptcy plan at a court hearing on February 26.

Genesis filed for bankruptcy in January 2023, one week after the SEC sued Genesis for allegedly selling illegal securities and two months after Genesis halted customer withdrawals from its Gemini Earn crypto lending program. (Reporting by Dietrich Knauth, Editing by Alexia Garamfalvi and Diane Craft)