The bankruptcy of FTX is causing problems for other companies in the crypto world. This is also the case with crypto service provider Genesis. What’s going on at the company? “They have big problems,” says Teunis Brosens, an economist at ING specialized in digital money.
Genesis is an investment fund, a major lender in the crypto world. They do not trade in cryptocurrencies, but give loans to crypto companies and also invest in them. They specifically target financial institutions, such as hedge funds and asset managers. Earlier this year, Genesis had nearly $3 billion (about €2.8 billion) in loans outstanding, according to Reuters.
Cryptocurrency lenders like Genesis are basically the banks of the crypto world. “Unlike traditional banks, there are few rules they have to follow,” says Brosens. “That’s why crypto companies are often not transparent. We don’t know exactly what goes on behind closed doors.”
After FTX filed for bankruptcy last week, Genesis stopped making new loans. The company also blocked the possibility for customers to withdraw money. The American newspaper Wall Street Journal reported Monday that Genesis had turned to other investors for an emergency loan of $ 1 billion.
“A lender must now take over the company, or invest a lot of money. Otherwise, Genesis will also go bankrupt,” says Brosens.
What do FTX and Genesis have in common?
Genesis had about $175 million in an account with FTX earlier this year, Brosens says. As a result, they have also fallen victim to the bankrupt FTX, which can no longer repay this money. It could be that they also gave a loan to FTX. Or that they have invested in FTT, the currency of the bankrupt company. “But because there is little transparency in the crypto world, nobody knows exactly how the lines between the companies run,” says the economist.
“Genesis already had some losses earlier this year,” Brosens said. This spring, all financial markets struggled. Not only the traditional markets, but also crypto suffered from this. In addition, the cryptocurrency Terra crashed. That had an effect on many crypto companies. Not only on FTX, but also on Genesis. For example, they had invested in Terra. “These problems have festered ever since,” says the economist.
Genesis is an investment fund that focuses on institutions. Therefore, this does not immediately affect people who have invested in crypto. “But it does feed investor nervousness,” says Brosens. “It damages confidence in the crypto market.” If Genesis were to go out of business, it could ultimately affect companies that Genesis has loaned money to or invested in. That could hurt individual investors.”
Is there a domino effect?
“It has become clear that many crypto companies are intertwined,” says Brosens. “You can draw lines from one company to another, they buy each other’s crypto, invest in each other. That can indeed cause a domino effect. If major players collapse, the rest will fall too.” We don’t yet know how big that domino effect would be.
According to Brosens, we must distinguish between the old original cryptocurrencies, such as bitcoin, and the exchanges and platforms that have been built around them. “There is not much going on with crypto coins such as bitcoin right now,” says the economist. The coins have fallen in value. “But that has more to do with the trust of the people who invest in it, not the dependence on other crypto companies.”