Genesis’ crypto lending unit files for bankruptcy in the US

Jan 20 (Reuters) – The credit arm of crypto firm Genesis filed for U.S. bankruptcy protection from creditors on Thursday, brought down by a market rout along with the likes of exchange FTX and lender BlockFi.

Genesis Global Capitalone of the largest crypto lenders, froze customer redemption on November 16, after FTX stunned the financial world with its bankruptcy, fueling fears that other companies could collapse. The company is owned by venture capital firm Digital Currency Group (DCG).

Genesis’ credit unit said it has both assets and liabilities in the $1 billion to $10 billion range and estimated it has more than 100,000 creditors in its filing in U.S. Bankruptcy Court for the Southern District of New York.

Genesis Global Holdco, the parent group of Genesis Global Capital, also filed for bankruptcy protection, along with another Genesis Asia Pacific credit unit.

Genesis Global Holdco said in a statement that it would consider a potential sale or equity deal to pay creditors and that it had $150 million in cash to support the restructuring.

It added that Genesis’ derivatives and spot trading, broker-dealers and custodial firms are not part of the bankruptcy process and will continue their customer trading operations.

Genesis’ bankruptcy filing is the latest in a cascade of cryptocurrency and job cuts triggered by falling prices last year.

Genesis was already embroiled in a dispute with Gemini Trust Co, founded by identical twin cryptocurrency pioneers Cameron and Tyler Winklevoss, former US Olympic rowers. The two firms are vying for a crypto-lending product called Earn, which they jointly offer.

The Winklevoss twins said Genesis owes more than $900 million to about 340,000 Earn investors. On January 10, Cameron Winklevoss called for removal of Barry Silbert as CEO of Digital Currency Group.

About an hour after the bankruptcy filing, Cameron Winklevoss tweeted that Silbert and Digital Currency Group continued to deny creditors a fair deal.

“Unless Barry (Silbert) and DCG come to their senses and make a fair offer to creditors, we will immediately file a lawsuit against Barry and DCG,” Winklevoss said in his tweet thread.

Genesis and Gemini were accused by the US Securities and Exchange Commission on January 12 with illegally selling securities to investors through the Earn program. Tyler Winklevoss called the complaint disappointing.

Genesis brokers digital assets for financial institutions such as hedge funds and asset managers and has had almost $3 billion in total active loans at the end of the third quarter, down from $11.1 billion a year earlier, according to its website.

Last year, Genesis made $130.6 billion in crypto loans and traded $116.5 billion in assets, according to its website.

Its two biggest borrowers are Three Arrows Capital, a Singapore-based crypto hedge fund, and Alameda Research, a trading company closely linked to FTX, a source told Reuters. Both are in bankruptcy proceedings.

Three Arrows’ debts to Genesis were assumed by the parent company Digital Currency Group (DCG), which then filed suit against Three Arrows. DCG’s portfolio companies also include crypto asset manager Grayscale and news service CoinDesk.

Crypto lenders, which acted as de facto banks, thrived during the pandemic. But unlike traditional banks, they are not required to maintain capital reserves. Earlier this year, collateral shortages forced some lenders — and their customers — to take big losses.

Reporting by Tom Hals in Wilmington, Delaware and Akanksha Kushi; Editing by Lananh Nguyen, Clarence Fernandez and Kim Coghill

Our standards: Thomson Reuters Trust Principles.

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