Faltering crypto company Genesis is stirring up the entire sector

The American Genesis is a big spider in a web of crypto players. Since the downfall of the FTX crypto exchange, the company has been reeling, adding to uncertainty in the industry.

Is Genesis filing for protection from its creditors or not? The US crypto company gave little information so far, it seems to be constantly taken in speed. This uncertainty weighs on the sector, because Genesis is an important player.

The essence

  • The American crypto company Genesis has problems in its credit department. Worried investors wanted their money back after the downfall of the FTX crypto exchange. The company could not meet this requirement and is looking for fresh money.
  • Genesis is not only active in lending, but also in trading, derivatives and custody. More than 1,000 major counterparties are involved.
  • Genesis is an affiliate of the Digital Currency Group, which also owns a crypto fund manager.
  • Bankruptcy is not ruled out, but the company is trying to avoid that.

It provides crypto services for trading, credit, custody and derivative products to numerous institutions. It traded $116 billion in crypto in 2021, signed $131 billion in crypto loans and has 1,000 institutional counterparties. Genesis is an affiliate of American billionaire Barry Silbert’s Digital Currency Group. It received funding from SoftBank, Singapore’s sovereign wealth fund, and from Alphabet’s venture capital arm CapitalG.

Genesis credit arm faced fleeing investors after FTX’s downturn and had to suspend repayments. The company is feverishly seeking $1 billion, but according to the Bloomberg news agency, it is not succeeding. The ambitions are now said to have been halved to 500 million dollars.

According to The New York Times, Genesis has hired investment bank Moelis & Company to explore several avenues, including bankruptcy.

Infection



A bankruptcy of Genesis could lead to a cascade of problems among the many counterparties.

A bankruptcy of Genesis could lead to a cascade of problems among the many counterparties. Although it is not clear who the counterparties are and to what extent they depend on Genesis. It is known that the crypto company Gemini is already experiencing difficulties.

What about the group around Genesis? Owner Digital Currency Group also owns cryptocurrency fund manager Grayscale Trusts. Grayscale claims those funds are safe because an independent company tracks them. Despite this, Grayscale’s bitcoin fund is trading at a discount of 50 percent to the bitcoin price.

Digital Currency Group itself owes Genesis $575 million, Silbert says in a letter to its shareholders. That money must be paid back in May next year. Silbert summarizes the problems at Genesis’ credit department as a liquidity issue and a mismatch of maturities. However, there are particularly critical voices in the sector. Genesis would have been frivolous in lending and taking big risks.

Digital Currency Group also received a $350 million loan from a group led by investment firm Eldridge. The company also filed a $1.2 billion claim against bankrupt speculative fund Three Arrows Capital. That drama hit the group earlier this year.

Communication



What does not help is that the communication of Genesis can change significantly.

What doesn’t help is Genesis’ lack of transparency and pathetic communication. On November 8, the company said it had no net credit exposure to the FTX crisis. A day later, Genesis had to admit that it had sold collateral with a loss of $ 7 million due to the large market fluctuations.

Two days later, Digital Currency Group pumped $140 million into Genesis. On Nov. 16, Genesis said on Twitter that its customers were abnormally withdrawing cryptocurrency, exceeding “current liquidity.” On November 17, Genesis admitted it is seeking $1 billion.