In the very beginning Genesis played it cool:
Genesis has a trading relationship with FTX, amongst other exchanges. Our exposure to FTX has no impact on our ability to serve our clients.
— Genesis (@GenesisTrading) November 9, 2022
Then on Nov 10 Genesis announced “to provide transparency” that it had about $175 million in locked funds on FTX trading account.
As part of our goal in providing transparency around this week’s market events, the Genesis derivatives business currently has ~$175M in locked funds in our FTX trading account. This does not impact our market-making activities.
— Genesis (@GenesisTrading) November 10, 2022
As a response DCG, Genesis’s parent company, gave $140 million to help Genesis:
“While the operation of our lending and trading businesses has not been impacted by recent market events, Genesis has taken steps to strengthen its balance sheet with an additional equity infusion of $140M from our parent company, Digital Currency Group,”.
Despite all of this Genesis announced the suspension of withdrawals on Nov 16:
"Today Genesis Global Capital, Genesis's lending business, made the difficult decision to temporarily suspend redemptions and new loan originations. This decision was made in response to the extreme market dislocation and loss of industry confidence caused by the FTX implosion," - said Amanda Cowie, vice president of communications and marketing at Digital Currency Group (DCG), the parent company of Genesis (and also of Grayscale Investment, Foundry, Luno and CoinDesk).
Although Grayscale Investment which manages GBTC, the largest bitcoin investment vehicle, said that "Genesis Global Capital [its sister company] is not a counterparty or service provider for any Grayscale product,” this piece of news provoked concerns about the stability of the whole DCG which owns 10% of GBTC.
Reiterating this one… if DCG doesn’t bring in $1B over the weekend, next week is going to be worse than this week. https://t.co/TmZkaN0X70
— Andrew (@AP_ArchPublic) November 18, 2022
Now Genesis Global Capital has hired the investment bank Moelis & Company to explore options including a potential bankruptcy, three people familiar with the situation spoke out according to The New York Times.
By the way, DCG and Genesis also have some unclear intercompany loans which can worsen the situation, although companies say that there is nothing wrong. It was confirmed by DCG CEO Silbert that DCG has a liability to Genesis Global Capital of $575 million connected to the crash of 3AC that Genesis worked with. Also there is one more $1.1 billion long-term promissory note.
This summer an investigation about DCG and 3AC appeared on the web. It said that DCG and 3AC were engaged in some kind of scheme to extract value from the GBTC premium. If that was even partially true the internal kitchen of DCG can be not as stable as they want to make us believe.
By the way even well established companies do not ignore this situation which means that even they are worried about it. Here is the announcement Tether made on its blog recently:
If Genesis goes bankrupt this can definitely undermine DCG. If it happens, the collapse will be tremendous, as DCG is one of the largest crypto companies and has shares in more than 165 companies including Coinbase, Ripple and Ledger. Taking into account how turbulent this period is for the crypto market we should all be prepared…
