As a result of the problems currently plaguing the crypto market, Genesis and its parent company Digital Currency Group (DCG), a committee of creditors, which includes cryptocurrency exchange Gemini, has submitted a plan to resolve liquidity problems and provide a path for asset recovery.
Crypto company Genesis and DCG owe $900 million
Cameron Winklevoss, president and co-founder of Gemini, on the issue of Genesis and DCG recently stated:
“Houlihan Lokey has presented a plan on behalf of the Creditors’ Committee to address Genesis and DCG’s liquidity issues and provide an asset recovery pathway.”
Genesis and its parent company DCG reportedly owe Gemini users an estimated $900 million.
Houlihan Lokey is a New York-based investment firm specializing in advising creditors, which had previously assisted in similar proceedings for Lehman Brothers and WorldCom.
The official Twitter account of Cameron Winklevoss reads:
Earn Update: Today, Houlihan Lokey presented a plan on behalf of the Creditor Committee to resolve the liquidity issues at Genesis and DCG and provide a path for the recovery of assets.
— Cameron Winklevoss (@cameron) December 20, 2022
Users of the Earn service on the cryptocurrency exchange, which allows them to earn between 0.45% and 8% interest on their crypto assets, have apparently been unable to access their funds since 16 November.
This was due to third-party contagion, which involved cryptocurrency broker Genesis, the main provider facilitating the Earn service. Thus, Genesis halted its withdrawals on the same day, citing the consequences of the FTX collapse and calling the withdrawal requests abnormal.
Crypto liquidity: the problems of other exchanges in the industry
The financial situation currently affecting DCG, in addition to crypto Genesis, has also had serious knock-on effects for other industry players.
For example, Dutch cryptocurrency exchange Bitvavo said it has 280 million euros ($297 million) “stuck” with Digital Currency Group. In fact, these assets make up 17.5% of the total 1.6 billion euros ($1.69 billion) that the exchange claims to manage in deposits and other assets.
However, DCG said that the outstanding funds are instead held by its independent subsidiary, namely Genesis and not DCG.
Grayscale Capital, another part of the DCG empire, is also facing significant financial stress, albeit for different reasons.
In fact, the Grayscale Bitcoin Trust, a popular fund that offers investors exposure to Bitcoin without having to hold or guard the asset, has reached historic discounts on the underlying asset.
Thus, the trust is trading at a 47.54% discount to Bitcoin, according to YCharts.
Genesis’s crisis: only a month ago it had announced a withdrawal freeze
Unfortunately, crypto company Genesis, like many others in the industry, was affected by the severe market turmoil that occurred following the collapse of the FTX exchange. Indeed, in November Genesis, which like FTX is a cryptocurrency trading platform, announced on Twitter that it was blocking withdrawals.
The problem is that there is a lack of liquidity to turn customers’ withdrawals into “liquid” money. The FTX case and the vertical market crash that followed certainly did not help: there were too many investors willing to accept today’s losses to avoid worse ones tomorrow.
In addition, there seems to be too little liquidity at Genesis, which was considered to be at risk of bankruptcy, like FTX. On Twitter they stated:
“At Genesis we are committed to doing all we can for customers in a challenging market environment.”
Further aggravating Genesis’s situation was the Wall Street Journal‘s indiscretion that Genesis had made loans to Alameda Research, the Bankman-Fried trading firm with a portfolio full of FTT, FTX’s token.
The situation is this: FTT collapses, the loan to Alameda is at risk, and in turn so is Genesis.