Jan 20 (Reuters) – The loan unit of crypto firm Genesis filed for bankruptcy protection in the United States on Thursday, owing its creditors at least $3.4 billion, after being knocked down by a rout market with companies like FTX exchange and lender BlockFi.
Genesis Global Capital, one of the biggest crypto lenders, froze client redemptions on November 16 after the collapse of major exchange FTX sent shockwaves through the crypto asset industry, fueling fear that other companies may implode.
Genesis is owned by venture capital firm Digital Currency Group (DCG).
Its bankruptcy filing is the latest in a string of crypto failures triggered by a market meltdown that wiped around $1.3 trillion from the value of crypto tokens last year. As bitcoin has surged so far in 2023, the impact of the market crash has continued to hit businesses in the highly interconnected industry.
The bankruptcy “is not a shock to the markets,” said Ivan Kachkovski, currency and crypto strategist at UBS. “It remains to be seen whether the chain effect will continue.”
“However, given that the funds have already been frozen for more than two months and no other major crypto companies have reported any associated weakness, it is likely that the contagion would be limited.”
Genesis’s lending unit said it had both assets and liabilities between $1 billion and $10 billion, and estimated it had more than 100,000 creditors on file with the U.S. Court of Justice. bankruptcies for the Southern District of New York.
Genesis Global Holdco, the parent group of Genesis Global Capital, has also filed for bankruptcy, along with another loan unit Genesis Asia Pacific.
Genesis Global Holdco said in a statement that it would consider a potential sale, or equity-related transaction, to pay creditors, and that it had $150 million in cash to support the restructuring.
He added that Genesis’ derivatives and spot trading, brokerage and custody businesses were not part of the bankruptcy process and would continue trading with customers.
CLAIMS OF CREDITORS
Genesis owes its 50 biggest creditors $3.4 billion, according to Reuters calculations from the bankruptcy filing. Its biggest creditor is crypto exchange Gemini, to which it owes $765.9 million. Gemini was founded by identical twin cryptocurrency pioneers Cameron and Tyler Winklevoss.
Genesis was already embroiled in a dispute with Gemini over a crypto loan product called Earn that the two companies jointly offered to Gemini customers.
The Winklevoss twins said Genesis owed more than $900 million to some 340,000 Earn investors. On January 10, Cameron Winklevoss called for the removal of Barry Silbert as chief executive 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 be taking legal action against Barry and DCG imminently,” Winklevoss said in his tweet thread.
DCG did not immediately respond to a request for comment from Reuters on the tweets.
Amsterdam-based crypto exchange Bitvavo said in December that it was trying to recover 280 million euros ($302.93 million) that it lent to Genesis.
Bitvavo said in a blog post on Friday that the refund talks “have not yet resulted in a comprehensive agreement that works for all parties involved” and that it would continue to negotiate.
The bankruptcy filing “brings the negotiation process into calmer waters,” Bitvavo said.
Genesis traded digital assets for financial institutions such as hedge funds and asset managers and had nearly $3 billion in total active loans at the end of the third quarter, up from $11.1 billion a year earlier. year earlier, according to its website.
Last year, Genesis issued $130.6 billion in crypto loans and traded $116.5 billion in assets, according to its website.
Its two main borrowers were Three Arrows Capital, a Singapore-based crypto hedge fund, and Alameda Research, a trading company with close ties to FTX, a source told Reuters. Both are in bankruptcy proceedings.
Three Arrows’ debt to Genesis was assumed by its parent company Digital Currency Group (DCG), which then filed a lawsuit 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, have exploded during the pandemic. But unlike traditional banks, they are not required to hold capital buffers. Earlier this year, a lack of collateral forced some lenders – and their customers – to take heavy losses.
($1 = 0.9243 euros)
Reporting by Tom Hals in Wilmington, Delaware, Akanksha Khushi and Elizabeth Howcroft in London; Editing by Lananh Nguyen, Clarence Fernandez, Kim Coghill, Ira Iosebashvili and Sharon Singleton
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