David Bailey, CEO of Bitcoin Magazine, has accused Barry Silbert, the founder of Digital Currency Group (DCG), of market manipulation with the Grayscale Bitcoin Trust, GBTC.
Bailey posted several documents on Twitter revealing that between January 24 and May 10, 2022, Genesis Global Capital (GGC) extended four loans to DCG, totaling $500 million. On June 18, 2022, DCG borrowed another 18,697.74 Bitcoin, valued at $382 million. Documents revealed that this Bitcoin loan came without a specified maturity date and collateral.
Interestingly, even at this stage, Genesis was grappling with financial difficulties. The company was one of the main lenders to the infamous crypto fund Three Arrows Capital (3AC), which suffered big losses on the collapse of the Terra Luna.
According to Bailey, Barry Silbert should definitely have been aware of Genesis's financial situation at that time. Genesis is a wholly-owned subsidiary of DCG, meaning DCG owns 100% of its common stock.
In November 2022, DCG proposed repaying part of the Bitcoin loan, not with BTC, but with GBTC shares, amounting to $250 million. Bailey concluded that DCG used customer deposits to manipulate and prop up the GBTC price. This allegedly allowed DCG to use it as collateral to borrow Bitcoin from Genesis users, even though they were fully aware of the company's insolvency. “It's a crime!” Bailey wrote.
In June 2022, GBTC traded at a roughly 30% discount to bitcoin, deepening to almost 40% by November 2022. At that time, Grayscale was wholly owned by DCG. Investors feared that Grayscale might declare bankruptcy due to issues with Genesis, leading to selling pressure on GBTC.
Later that year, Genesis announced the suspension of withdrawals, citing “market dislocation and loss of industry confidence caused by the FTX implosion,” and in January 2023, filed for bankruptcy.
According to Bloomberg, following the collapse of Genesis, DCG has been under investigation by the United States Department of Justice’s Eastern District of New York and the Securities and Exchange Commission (SEC).
Additionally, the Winklevoss brothers, who founded the Gemini exchange, have accused Barry Silbert of fraud and filed a lawsuit naming both him and DCG. Genesis had been the lending partner for Gemini Earn. The Winklevosses claim that Genesis owes $900 million to 340,000 Gemini Earn users.
Based on the court filing, Genesis has outstanding debts exceeding $3.4 billion to its top 50 creditors, which include Gemini and several other entities.
In a recent development, it appears that Genesis is now suing DCG over the 18,697.74 BTC loan given in June. According to the court documents, only a portion of the loan has been repaid, and DCG still owes Genesis 4,550 Bitcoin, equivalent to $117.6 million.
The bankruptcy of Genesis also appears to be putting additional pressure on DCG, prompting them to liquidate some of their assets. Recent reports suggest that DCG is now considering selling Coindesk, a leading blockchain and cryptocurrency media company. The transaction is reportedly valued at $125 million, a figure that many consider to be on the lower side given Coindesk’s prominence in the space.
As the situation unfolds, we continue to Observe.