Jan. 20 (Reuters) – The lending unit of crypto company Genesis filed for bankruptcy protection in the United States on Thursday, owing creditors at least $3.4 billion after being toppled in a market rout along with FTX exchange and lender BlockFi.
Genesis Global Capital, a leading cryptocurrency lender, froze customer refunds on November 16 after the collapse of major exchange FTX sent shockwaves through the crypto sector.
Genesis is owned by venture capital firm Digital Currency Group (DCG).
Its filing for bankruptcy is the latest crypto fiasco stemming from a market crash that wiped out about $1.3 trillion worth of crypto tokens last year. While bitcoin has soared so far in 2023, the market crash has continued to reverberate through the highly interconnected sector.
Ivan Kaczkovsky, a currency and crypto analyst at UBS, said the bankruptcy “doesn’t come as a shock to the markets.” “It remains to be seen if the impact of the series will continue.”
The company’s filing with the US Bankruptcy Court for the Southern District of New York estimated it had more than 100,000 creditors, had assets of $5.3 billion, and debt, including intercompany liabilities, of $5.1 billion as of November 30.
Genesis has outlined a plan to emerge from bankruptcy by May 19, according to court filings. Court filings say it will attempt to sell its assets at auction within three months to pay creditors.
Genesis Global Holdco, the parent company of Genesis Global Capital, has also filed for bankruptcy protection, along with another lending unit, Genesis Asia Pacific.
Genesis Global Holdco said in a statement that it would consider a potential sale or equity deal to pay off creditors and that it had $150 million in cash to support the restructuring.
It added that Genesis derivatives, spot trading, brokerages and custody businesses were not part of the bankruptcy process, and will continue with client trading operations.
Genesis owner DCG said in a statement that neither DCG nor its employees, including members of Genesis’ board of directors, were involved in the decision to file for bankruptcy.
“Genesis has its own independent management team, legal counsel and financial advisor and has appointed a special committee of independent managers responsible for the restructuring of Genesis Capital,” the statement said.
creditors’ claims
Genesis owes its 50 largest creditors $3.4 billion, according to Reuters calculations from its bankruptcy filing. It owes $765.9 million to its largest creditor, cryptocurrency exchange Gemini, which was founded by identical twins Cameron and Tyler Winklevoss, cryptocurrency pioneers and former US Olympic rowers.
Genesis has entered into a dispute with Gemini over a crypto lending product called Earn that the two companies jointly offered to Gemini customers.
The Winklevoss twins said Genesis owes more than $900 million to about 340,000 earning investors. On January 10, Cameron Winklevoss called for Barry Silbert to be removed as CEO of Genesis parent company DCG.
About an hour after filing for bankruptcy, Cameron Winklevoss tweeted that Silbert and DCG continued to deny creditors a fair deal and threatened to sue unless they “make a fair offer to creditors.”
In December, Amsterdam-based cryptocurrency exchange Bitvavo said it was trying to recoup 280 million euros ($302.93 million) it had loaned to Genesis. On Friday, Bitvavo said in a blog post that talks about the payment “have not yet led to a comprehensive agreement that works with all parties involved” and it will continue negotiating.
Petafo said the bankruptcy filing “makes the negotiation process much calmer.”
lending business
Genesis has brokered digital assets for hedge funds and asset managers and has been approx $3 billion total active loans at the end of the third quarter, down from $11.1 billion a year ago, according to its website.
Its website shows that last year, Genesis provided $130.6 billion in crypto loans and traded in assets worth $116.5 billion.
Its two largest borrowers are Three Arrows Capital, a Singapore-based cryptocurrency hedge fund, and Alameda Research, a trading firm closely associated with FTX, a source told Reuters. Both are in bankruptcy proceedings.
The original Genesis DCG assumed Three Arrows’ debt to Genesis and then sued Three Arrows. DCG portfolio companies also include crypto asset manager Grayscale and news service CoinDesk.
Court filings said a special committee is investigating transactions that occurred in the months leading up to the bankruptcy to determine whether Genesis has legal claims it can file.
Those claims include Genesis Global Capital lending $850 million to DCG and transferring its bankruptcy claim against Three Arrows Capital to DCG for a $1.1 billion promissory note. The special committee is also investigating whether Genesis can void some of its obligations to Gemini, according to the filings.
Cryptocurrency lenders, which acted as physical banks, thrived during the pandemic. But unlike traditional banks, they are not required to hold cushions of capital. Earlier this year, a shortage of collateral forced some lenders — and their customers — to take big losses.
($1 = 0.9243 euros)
Additional reporting by Tom Hales in Wilmington, Delaware and Akanksha Khushi and Elizabeth Howcroft in London; Editing by Lanan Nguyen, Clarence Fernandez, Kim Coghill, Ira Iosbashvili, Sharon Singleton and David Gregorio
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