The current situation of Genesis, the company specializing in crypto lending, in the wake of the FTX collapse, raises concerns and doubts on the one hand and some hope on the other.
This is evident from the latest tweets on the web, including the most recent one from Bitcoin Magazine which reads:
“We have no plans to file bankruptcy imminently,” said a representative from Genesis.”
After all, already in the previous week, the company had confirmed its intention to stop withdrawals. Then, the platform’s declaration of the need for a $1 billion emergency fund within the week.
What will be the fate of Genesis? Will it survive this crisis or should it prepare for the worst?
FTX collapses and causes a chain reaction: here are the consequences
As we know, many cryptocurrencies and companies in the blockchain world are suffering from the collapse of the FTX exchange. Since the latter has collapsed, akin to a chain reaction, the price of important coins has also gone into free fall and many other companies have found themselves in a difficult liquidity situation.
In particular, the situation of the company Genesis is worrying investors and experts. According to another recent tweet by Watcher.Guru:
— Watcher.Guru (@WatcherGuru) November 21, 2022
“Crypto lender Genesis warns of bankruptcy without new funding.”
The news comes from Bloomberg, which reports that the company Genesis is warning about bankruptcy: it will come without new funding. This is because of the ripple effects of the FTX collapse that are still being felt.
Making the situation even more worrisome is the fact that this news comes after the platform had already declared that it needed a $1 billion emergency fund by this week.
Indeed, amid FTX’s downfall, Genesis has reportedly been struggling to raise funds. This truth, therefore, has led most to warn of an impending bankruptcy filing for the company.
Genesis on the brink of bankruptcy, why?
At this point, the question arises: Why has Genesis, unlike other companies, been most affected by the collapse of the FTX exchange? Let’s try to proceed in stages.
According to a new report from Bloomberg, without an influx of new funding, Genesis could be dangerously on the brink of bankruptcy. Indeed, people close to the matter have revealed that the platform is warning potential investors of the dire situation it is in.
Among the main problems is the fact that the lending institution has been facing a liquidity crisis and is seeking massive emergency borrowing to save itself from a similar fate as FTX.
Indeed, Genesis remains cautious and has already stopped trading in the midst of uncertainty. They recently commented that they have no intention of declaring imminent bankruptcy. However, the term imminent gives no guarantee of a stable situation, only of precarious and potential salvation for Genesis.
So while there is still hope for the necessary financing, it seems that the chances of salvation are slim. But why has Genesis been among the most affected as a result of the contagion of the FTX havoc?
The crux of the matter is this: Genesis had received billions of $FTT, FTX’s native token, prior to the company’s bankruptcy. Moreover, the extent of its dependence on FTX could mean its own downfall.
Digital Currency Group granted Genesis Trading a $140 million equity infusion following the collapse of FTX. Subsequently, the $1 billion loan was required by the company because of the overwhelming impact of FTX’s disappearance from the market.
The discontinuation of withdrawals: requests had exceeded the availability of liquidity
Let’s go back to a week ago to try to understand the background of the situation of Genesis before the latest statements.
A few days after the FTX collapse, the lending division of cryptocurrency investment bank Genesis Global Trading had temporarily stopped accepting redemptions and initiating new loans.
The interim CEO himself, Derar Islim, had confirmed the decision to clients in a phone call. In addition, according to the company’s website, the division known as Genesis Global Capital, caters to institutional clients.
Specifically, the company had $2.8 billion in active loans at the end of the third quarter of 2022.
However, according to Islim, Genesis Trading, which serves as Genesis Global Capital’s broker-dealer, is funded and operated independently from that lending arm. Indeed, the CEO had stated that Genesis’ custody and trading services were still fully functional.
And, already during the previous week, Islim had informed clients that Genesis was exploring options for the lending unit, including identifying a new source of funding.
Amanda Cowie, vice president of communications and marketing at DCG, had said:
“Today Genesis Global Capital, Genesis’ lending business, made the difficult decision to temporarily suspend repayments and new loan creation. This decision was made in response to the extreme market dislocation and loss of industry confidence caused by the FTX implosion.”
To this statement, Cowie added that the decision to stop withdrawals was limited only to the company’s lending activity and did not affect Digital Currency Group’s business operations in any way.
The problem following the collapse of the FTX exchange, Islam reports, is that withdrawal requests from customers far exceeded the available liquidity with Genesis. In fact, the company had revealed that the $175 million in funds stuck in its FTX trading account belonged to the derivatives unit.
To strengthen the balance sheet, DCG had decided to inject $140 million in new shares. However, even this was not enough to keep it from bringing it to the brink of bankruptcy.
Genesis’ statements regarding the critical situation
In the aftermath of such a dire situation, especially after the declaration of withdrawal suspension, Genesis did not hesitate to make statements.
Unfortunately, its Earn program has been unable to meet customer refunds within the stipulated agreements: five business days. This was all because of the suspension of withdrawals.
On the situation, Genesis had stated:
“We are working with the Genesis team to help customers redeem their funds from the Earn program as quickly as possible. We are disappointed that the Earn program will not be met, but we are encouraged by the commitment of Genesis and its parent company Digital Currency Group to do everything in their power to meet their obligations to clients under the Earn program.”