After recently speculating that the crypto lending service Genesis is on the verge of bankruptcy, parent company Genesis Global Holdco LLC has now officially filed corresponding applications with the bankruptcy court. In addition to Genesis Global Holdco LLC, applications for the two subsidiaries Genesis Asia Pacific Pte. Ltd and Genesis Global Capital. All the companies mentioned are part of the Digital Currency Group, the leading venture capital firm in the crypto market.
The bankruptcy came to light after FTX and Three Arrows Capital went bankrupt
This is reported today by the news service CoinDesk, which is also located under the umbrella of the Digital Currency Group. The crypto lending platform ran into payment difficulties after severe slumps in the industry last year. Hedge fund Three Arrows Capital collapsed in the summer of 2022. This is said to have caused Genesis hundreds of millions of dollars in damage. This put financial pressure on the lending platform and parent company DGC had to inject capital so as not to jeopardize operations.
But then in November the crypto exchange FTX in which Genesis was invested crashed. Eventually, the loan servicer was forced to stop making payments to customers. It also hurt customers of a yield product offered by the Winklevoss Twins crypto exchange, Gemini.
In a first statement, Cameron Winklevoss was happy that the bankruptcy proceedings had now been initiated. “This is a critical step in recovering your wealth,” Winklevoss tweeted. He now expects the $900 million in Gemini client funds held by Genesis to be released soon. The payment stop is said to affect 34,000 customers of the Gemini earning program.
1/ Earnings Update: This afternoon, Genesis Global Capital, LLC (Genesis) filed for Chapter 11 bankruptcy. This is a critical step towards our ability to recover your assets.
— Cameron Winklevoss (@cameron) January 20, 2023
Liabilities and assets up to $10 billion
According to the Coin Desk report, Genesis Global Capital estimates it has between $1 billion and $10 billion in liabilities and assets. The other two subsidiaries estimate their liabilities and assets at $100 million and $500 million, respectively. It is also said that the bankruptcy will result in a high credit burden of about 350 million US dollars for the parent company Digital Currency Group.
The bankruptcy filing should not affect Genesis’ subsidiaries active in the derivatives and currency trading and custody business. Genesis Global Trading is also said to be exempt and will continue to trade with clients.
Genesis is trying to save costs by laying off employees
By filing for bankruptcy, Genesis Global hopes to initiate a comprehensive restructuring process. According to the company, there may be enough money left over to pay unsecured creditors. In order to save money, Genesis had already announced significant cost reductions at the beginning of the month. To that end, 30 percent of the workforce is to be laid off and the number of employees reduced to less than 150. In addition, the Digital Currency Group recently announced that it would suspend quarterly dividends to its investors, of according to the January 17 shareholder letter.
It is also unclear how news website CoinDesk, which is currently looking for buyers, will continue. The website recently received a lot of attention because it published the first information about the payment difficulties at FTX and the hedge fund Alameda Research.
Parent company manages more than 600,000 Bitcoins
The link with parent company Digital Currency Group is particularly explosive for Genesis. Because the group also includes the digital asset manager Greyscale. This in turn operates the so-called Grayscale Bitcoin Trust, which manages an incredible volume of more than 10 billion US dollars in Bitcoin. In total, Grayscale is said to be managing more than 600,000 Bitcoins for its customers, which include mainly institutional investors. Late last year, this asset was trading at a record discount to net asset value, according to a CoinDesk report. At the moment, however, this has decreased again, and probably due to the rise in the price of Bitcoin in 2023.
Some observers of the case fear that Genesis’ financial problems could also cause the parent company to face payment difficulties and thus jeopardize the stability of the Grayscale Bitcoin Trust. If Grayscale actually goes bankrupt and liquidates the bitcoin management holdings, the main currency could lead to a violent price reaction, possibly even more than the consequences of the FTX crash in November 2022.
Let’s all grow together, treat others with respect, and get back to having fun and making a dent in the universe. I can assure you that GDC is definitely committed to doing just that. Please see here for my full statement and Q&A. (10/10) https://t.co/xEohthuJlb
— Barry Silbert (@BarrySilbert) January 10, 2023
Demands for resignation remain unheard
Gemini co-founder Winklevoss recently called on digital currency group CEO Barry Silbert to step down. However, Silbert denied this, explaining Winklevoss’ communication as a publicity stunt. In a note to shareholders, Silbert wrote: “Last year was the most difficult year of my life. Bad actors and blow-ups have blighted our industry, and the ripple effects are reaching far and wide. While DCG, our subsidiaries and many of our portfolio companies are not immune to the effects of the current turmoil. It was challenging to question my integrity and good intentions after spending ten years pouring everything into the company and this space with a relentless focus on getting things right.”
Silbert continued, “The industry has a lot of hard work ahead of it to restore its credibility and reputation, which has been nearly destroyed by an unprecedented wave of fraud and criminal behavior. This will be a challenging year for all of us, but I remain hopeful.”
Genesis and the Gemini crypto exchange could face further problems if they are charged by the US financial regulator SEC. This alleges that the “Gemini Earn” crypto lending program offered and sold unregistered securities to small investors. The SEC has already made similar allegations against the company Ripple Labs with its digital currency XRP. “Investigations are ongoing into additional securities violations and other companies and individuals related to the alleged wrongdoing,” the SEC statement said. “We allege that Genesis and Gemini offered unregistered securities to the public, circumventing disclosure requirements designed to protect investors,” said SEC Chairman Gary Gensler.
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