Genesis' crypto lending division declares bankruptcy in the U.S.

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After being knocked out of the market along with companies like exchange FTX and lender BlockFi, the lending division of the cryptocurrency corporation Genesis filed for bankruptcy protection in the United States on Thursday, owing creditors at least $3.4 billion.

After the collapse of major exchange FTX sent shockwaves through the crypto asset business and fueled worry that other companies could implode, one of the largest crypto lenders, Genesis Global Capital, stopped allowing customers to redeem their investments on November 16.

Its bankruptcy declaration is the most recent in a succession of cryptocurrency failures brought on by a market crash that reduced the worth of crypto tokens by around $1.3 trillion last year. While the price of bitcoin has increased thus far in 2023, the highly interconnected sector has continued to be hit by the effects of the market crash.

According to UBS currency and crypto strategist Ivan Kachkovski,

[The bankruptcy] doesn’t come as a shock to the markets. It is still to be seen whether the chain reaction would continue.

It’s likely that the contagion would be contained considering that the funds have already been frozen for more than two months and that no other significant cryptocurrency company has disclosed a linked problem.

In its application with the U.S. Bankruptcy Court for the Southern District of New York, Genesis’ lending division estimated that it had more than 100,000 creditors and that its assets and liabilities were in the $1 billion to $10 billion range.

Along with another loan division, Genesis Asia Pacific, Genesis Global Holdco, the parent company of Genesis Global Capital, also applied for bankruptcy protection.

In a statement, Genesis Global Holdco stated that it would consider the possibility of selling assets or engaging in a stock-related transaction to pay creditors and that it has $150 million in cash on hand to support the reorganization.

Additionally, it was said that Genesis will keep up its client trading activities and that its derivatives and spot trading, broker dealer, and custody companies were not involved in the bankruptcy process.

The claims made by the creditors

Genesis’ debt to its 50 largest creditors is estimated to be $3.4 billion using the bankruptcy petition as a guide. Gemini, a cryptocurrency exchange, to whom it owes $765.9 million, is its biggest creditor. The identical twin bitcoin pioneers Cameron and Tyler Winklevoss established Gemini.

Genesis and Gemini were already embroiled in a legal battle over Earn, a cryptocurrency loan program that the two companies jointly provided to Gemini consumers.

According to the Winklevoss brothers, Genesis owes 340,000 Earn investors more than $900 million. On January 10, Cameron Winklevoss demanded that Barry Silbert be fired from his position as CEO of Digital Currency Group.

Cameron Winklevoss tweeted about Silbert and Digital Currency Group’s persistent denial of creditors a fair deal around an hour after the bankruptcy filing.

Winklevoss stated in his tweet thread that

We will be launching a lawsuit against Barry and DCG imminently if Barry (Silbert) and DCG don’t come to their senses and make a fair offer to creditors.

8/ We also believe that — in addition to owing creditors all of their money back — Genesis, DCG, and Barry owes them an explanation. Bankruptcy court provides a much-needed forum for that to happen. Sunlight is the best disinfectant.

— Cameron Winklevoss (@cameron) January 20, 2023

In December, Bitvavo, an Amsterdam-based cryptocurrency exchange, announced that it was attempting to recoup 280 million euros ($302.93 million) that it had lent to Genesis.

In a blog post published on Friday, Bitvavo stated that discussions on the payback “have not yet resulted in an overall arrangement that works for all parties involved” and that it would pursue further negotiations.

According to Bitvavo, the bankruptcy filing “brings the process of negotiations to calmer waters.”

Financial Business

According to its website, Genesis facilitated the sale of digital assets to financial organizations like hedge funds and asset managers. At the end of the third quarter, it had approximately $3 billion in total active loans, a decrease from $11.1 billion a year earlier.

According to its website, Genesis exchanged $116.5 billion worth of assets and offered crypto loans totaling $130.6 billion.
Three Arrows Capital, a Singapore-based cryptocurrency hedge fund, and Alameda Research, a trading firm closely associated with FTX, were its two biggest debtors, a source claimed. Both are going through bankruptcy.

The parent business of Three Arrows, Digital Currency Group (DCG), took on Three Arrows’ debt to Genesis and subsequently made a claim against Three Arrows. Additionally, cryptocurrency asset management Grayscale and news provider CoinDesk are among the DCG portfolio companies.

During the pandemic, crypto lenders—who served as the de facto banks—saw rapid growth. However, they are not required to retain capital reserves, unlike conventional banks. A lack of collateral earlier this year prompted some lenders – and their clients – to bear significant losses.

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