Barry Silbert, Founder and CEO, Digital Currency Group
David A. Grogan | CNBC
Crypto lender Genesis filed for Chapter 11 bankruptcy protection late Thursday night in Manhattan federal court, the most recent casualty within the industry contagion attributable to the collapse of FTX and a crippling blow to a business once at the guts of Barry Silbert’s Digital Currency Group.
The corporate listed over 100,000 creditors in a “mega” bankruptcy filing, with aggregate liabilities starting from $1.2 billion to $11 billion dollars, in keeping with bankruptcy documents.
Three separate petitions were filed for Genesis’ holding firms. In a press release, the corporate noted that the businesses were only involved in Genesis’ crypto lending business. The corporate’s derivatives and spot trading business will proceed unhindered, as will Genesis Global Trading.
“We sit up for advancing our dialogue with DCG and our creditors’ advisors as we seek to implement a path to maximise value and supply one of the best opportunity for our business to emerge well-positioned for the longer term,” Genesis interim CEO Derar Islim said in a press release.
The filing follows months of speculation over whether Genesis would enter bankruptcy protection, and just days after the Securities and Exchange Commission filed suit against Genesis and its onetime partner, Gemini, over the unregistered offering and sale of securities.
Genesis listed a $765.9 million loan payable from Gemini in Thursday’s bankruptcy filing. Other sizeable claims included a $78 million loan payable from Donut, a high-yield, decentralized platform, and a VanEck fund, with a $53.1 million loan payable.
Gemini co-founder Cameron Winklevoss initially responded to the news on Twitter, writing that Silbert and DCG “proceed to refuse to supply creditors a good deal.”
“We have now been preparing to take direct legal motion against Barry, DCG, and others,” he continued.
“Sunlight is one of the best disinfectant,” Winklevoss concluded.
Genesis is in negotiations with creditors represented by law firms Kirkland & Ellis and Proskauer Rose, sources acquainted with the matter told CNBC. The bankruptcy puts Genesis alongside other fallen crypto exchanges including BlockFi, FTX, Celsius, and Voyager.
FTX’s collapse in November put a freeze in the marketplace and led customers across the crypto landscape to hunt withdrawals. The Wall Street Journal reported that, following FTX’s meltdown, Genesis had sought an emergency bailout of $1 billion, but found no interested parties. Parent company DCG, which owes creditors a mounting debt of greater than $3 billion, suspended dividends this week, CoinDesk reported.
The crypto contagion
Genesis provided loans to crypto hedge funds and over-the-counter firms, but a series of bad bets made last 12 months severely damaged the lender and compelled it to halt withdrawals on Nov. 16.
The Recent York-based firm had prolonged crypto loans to Three Arrows Capital (3AC) and Alameda Research, the hedge fund began by Sam Bankman-Fried and closely linked to his FTX exchange.
3AC filed for bankruptcy in July within the midst of the “crypto winter.” Genesis had loaned over $2.3 billion value of assets to 3AC, in keeping with court filings. 3AC creditors have been fighting in court to get well even a sliver of the billions of dollars that the hedge fund once controlled.
Meanwhile, Alameda was integral to FTX’s eventual demise. Bankman-Fried has repeatedly denied knowledge of fraudulent activity inside his web of firms, but stays unable to offer a considerable explanation for the multibillion-dollar hole. He was arrested in December, and is released on a $250 million bond ahead of his trial, which is about to start in October.
Genesis had a $2.5 billion exposure to Alameda, though that position was closed out in August. After FTX’s bankruptcy in November, Genesis said that about $175 million value of Genesis assets were “locked” on FTX’s platform.
Genesis’ financial spiral has exposed Silbert’s broader DCG empire. The parent company was forced to take over Genesis’ $1 billion liability stemming from 3AC’s collapse. In a later letter to investors, Silbert disclosed an extra $575 million loan from Genesis to DCG for undisclosed investing purposes.
DCG pioneered publicly traded trusts, allowing investors to carry bitcoin and other currencies of their portfolio without direct exposure. Grayscale Bitcoin Trust’s discount to net asset value widened significantly last 12 months as confidence within the conglomerate waned.
It is a developing story. Please check back for updates.
