Cryptocurrency lender Genesis has filed for Chapter 11 bankruptcy in the US, becoming the latest victim of a shakeout in the digital asset market following the collapse of crypto exchange FTX.
Genesis Global Capital, one of three Genesis entities that filed for bankruptcy protection on Thursday, froze customer withdrawals on Nov. 16, just days after FTX filed its own Chapter 11 filing.
Lenders state assets and liabilities in the $1 billion to $10 billion range, and estimate more than 100,000 creditors have filed in the US Bankruptcy Court for the Southern District of New York. Genesis Global Holdco, the parent company of Genesis Global Capital, has also filed for bankruptcy protection, along with another lending arm, Genesis Asia Pacific.
Genesis Global Holdco said options under consideration included a sale and had $150 million in cash to help with the restructuring. Under the Chapter 11 process, companies in distress are temporarily protected from creditors while they attempt to restructure their finances.
Genesis’ derivatives and spot trading, broker-dealer and custody businesses are not part of the bankruptcy process and will continue to serve clients, the holding company said.
The bankruptcy filing is the latest in a string of cryptocurrency failures and massive job cuts that began last year with a sharp drop in digital asset prices.
Genesis provided $130.6 billion in crypto loans and traded $116.5 billion in assets last year, according to its website. The two biggest borrowers are Singapore-based crypto hedge fund Three Arrows Capital and trading firm Alameda Research, which has close ties to FTX, sources told Reuters. Three Arrows, Alameda and FTX are in bankruptcy proceedings.
Three Arrows’ debt to Genesis was taken over by parent venture capital firm Digital Currency Group (DCG), which subsequently made a claim against Three Arrows. DCG’s portfolio companies also include crypto asset manager Grayscale and news service CoinDesk.
Acting as de facto banks, cryptocurrency lenders have boomed during the pandemic. However, unlike traditional banks, there is no need to hold a cushion of capital. Collateral shortages have forced some lenders and their customers to suffer heavy losses this year.
However, the price of Bitcoin, an important crypto asset, has recovered since the FTX demise, trading above $20,000 after hovering around $17,000 after one of its rivals crashed. Bitcoin price was $20,946 on Friday morning, up nearly 1%.
University of Sussex Finance Professor Carol Alexander said Genesis’ Chapter 11 move was priced in by the cryptocurrency market.
“The industry is already downplaying the Genesis bankruptcy. When it sees one, it reinvests in cryptocurrencies and provides commissions to cryptocurrency institutions in the belief that it is safe to do so.”