Barry Silbert, Founder and CEO of Digital Currency Group
David A. Grogan | CNBC
Cryptocurrency lender Genesis filed for Chapter 11 bankruptcy protection in Manhattan federal court late Thursday night. This is the latest casualty of the industry contagion caused by the collapse of FTX, a devastating blow to the business that was once central to Barry Silbert’s Digital Currency Group.
The company lists more than 100,000 creditors in its “mega” bankruptcy filing, with total liabilities ranging from $1.2 billion to $11 billion, according to bankruptcy filings.
Three separate petitions have been filed against the Genesis holding company. In a statement, the company said the two companies are only involved in Genesis’ cryptocurrency lending business. The company’s derivatives and spot trading businesses will continue unimpeded, as will Genesis Global Trading.
“We are exploring avenues to maximize value and provide the best opportunities for our business to be well-positioned for the future,” said Deller Islim, Interim CEO of Genesys. We look forward to advancing our dialogue with DCG and our creditor advisors as we do so,” the statement said.
The filing follows months of speculation about whether Genesis will enter bankruptcy protection, as the Securities and Exchange Commission filed a lawsuit against Genesis and its former partner Gemini over an unregistered offering and sale of securities. It was only a few days after I woke up.
Genesis listed a $765.9 million loan from Gemini in its bankruptcy filing Thursday. Other sizable claims included his $78 million loan from Donut, a high-yield decentralized platform, and the VanEck fund, which includes a $53.1 million loan.
Genesis is in talks with creditors represented by law firms Kirkland & Ellis and Proskauer Rose, a source familiar with the matter told CNBC. The bankruptcy puts Genesis alongside other cryptocurrency exchanges such as BlockFi, FTX, Celsius and Voyager.
The collapse of FTX in November froze the market and prompted customers across the crypto industry to seek withdrawals. The Wall Street Journal reported that Genesis sought his $1 billion emergency bailout following the FTX meltdown, but failed to find a stakeholder. Parent company DCG, which owes more than $3 billion to creditors, has suspended its dividend this week, CoinDesk reports.
Crypto-contagion
Genesis provided loans to crypto hedge funds and over-the-counter companies, but last year saw a series of bad bets It seriously harmed the lender and stopped withdrawals on November 16th.
The New York-based firm has invested in three arrows capital (3AC) and Alameda Research, a hedge fund started by Sam Bankman-Fried and closely associated with his FTX exchange. Provided a currency loan.
3AC filed for bankruptcy in July in the middle of “crypto winter.” According to court filings, Genesis lent his 3AC $2.3 billion worth of his assets. 3AC’s creditors have fought in court to reclaim a fraction of the billions of dollars once controlled by hedge funds.
Alameda, on the other hand, was integral to the eventual demise of FTX. Bankman-Fried has repeatedly denied knowledge of his company’s misconduct within his web, but cannot offer any substantive explanation for the multi-billion dollar hole. He was arrested in December and released on a $250 million bail ahead of a trial scheduled to begin in October.
Genesis had $2.5 billion exposure to Alameda, but that position was closed in August. After FTX filed for bankruptcy in November, Genesis said approximately $175 million worth of Genesis assets were “locked” to FTX’s platform.
Genesis’ financial spiral exposed Silbert’s wider DCG empire. The parent company was forced to take over Genesis’ $1 billion in debt stemming from 3AC’s bankruptcy. In a subsequent letter to investors, Silbert revealed his $575 million additional loan from Genesis to his DCG for undisclosed investment purposes.
A listed company that pioneered DCG trustallowing investors to hold Bitcoin and other currencies directly in their portfolios without having to expose them publicly. Grayscale Bitcoin Trust The discount to net asset value increased significantly last year as confidence in conglomerates declined.
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