017 – Digital currency brokerage firm Genesis announced last month that it was filing for Chapter 11 of the U.S. Bankruptcy Act.
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“A judicial restructuring presents the most effective path to preserve assets and create the best possible outcome for all Genesis stakeholders,” Genesis interim CEO Derar Islim said in a statement.
Genesis entered a liquidity crisis and halted trading shortly after disclosing last November that it had $175 million locked up in an FTX trading account. The company then warned investors that it might have to file for bankruptcy if its efforts to raise $1 billion in new capital failed.
Financial pressure on Barry Silbert’s DCG began to emerge after problems in this lightly regulated sector spread to other companies, notably FTX. The cascading bankruptcies demonstrate the connectivity of the industry.
Genesis suffered heavy losses due to loans it made to defunct cryptocurrency hedge funds Alameda Research and Three Arrows Capital. Both Alameda and Three Arrows filed for bankruptcy last year.
Genesis laid off 20% of its employees in August 2022, citing market conditions. It subsequently laid off 30% more of its workforce in early January after CEO Islim said the company was “cutting costs and driving efficiencies” across its companies.
Genesis is more than US$3.5 billion in debt to its top 50 creditors, including cryptocurrency exchange Gemini, trading giant Cumberland, Mirana, MoonAlpha Finance and VanEck’s New Finance Income Fund, according to the published bankruptcy filing.
Shortly after FTX collapsed in its own bankruptcy case in November, Genesis Global Capital was forced to suspend customer withdrawals, hurting users of a performance product offered by the Winklevoss twins’ cryptocurrency exchange, Gemini.
Genesis had been struggling to raise new capital or reach an agreement with creditors. Along with parent company Digital Currency Group (DCG), it was under increasing pressure to deal with $900 million in blocked deposits.
Thursday’s bankruptcy filing could have wider effects for bitcoin, as Genesis and digital asset manager Grayscale share the same parent company, DCG. Grayscale operates Grayscale Bitcoin Trust (GBTC), which has more than US$10 billion in assets under management and at the end of last year was trading at a record discount to net asset value, although that discount has narrowed recently. The market fears that the fallout from Genesis’ bankruptcy filing could somehow lead to the liquidation of more than 600,000 bitcoins held by GBTC.