Jan 20 (Reuters) – The debt arm of crypto firm Genesis filed for U.S. bankruptcy protection on Thursday, owing at least $3.4 billion to creditors it was toppled by a market rout along with exchange FTX and lender BlackFi.
Genesis Global Capital, one of the largest crypto lenders, froze customer redemptions on Nov. 16, after the collapse of the FTX main stock exchange sent shock waves through the crypto asset sector, sparking concerns that other firms could implode.
Genesis is owned by venture capital firm Digital Currency Group (DCG).
Its bankruptcy filing is the latest in a string of crypto failures fueled by a market crash that wiped about $1.3 trillion from the value of crypto tokens last year. Although Bitcoin has rallied so far in 2023, the impact of the market crash continues to hit companies in the highly interconnected industry.
The bankruptcy “didn’t come as a shock to the markets,” said Evan Kachkowski, currency and crypto strategist at UBS. “Whether the chain effect will continue remains to be seen.”
“However, since the fund has already been frozen for more than two months and no other major crypto firm has reported related weakness, the contagion will be minimal.”
Genesis’ lending arm said it has both $1 billion and $10 billion in assets and liabilities, and estimated it has more than 100,000 creditors in a filing with the U.S. Bankruptcy Court for the Southern District of New York.
Genesis Global Holdings, the parent group of Genesis Global Capital, filed for bankruptcy protection along with another lender, Genesis Asia Pacific.
Genesis Global Holdings said in a statement that it is considering a possible sale or stock-related transaction to pay creditors and that it has $150 million in cash to support a restructuring.
Genesis’ derivatives and spot trading, broker dealer and custody businesses are not part of the bankruptcy process and will continue their client trading activities.
Genesis owes $3.4 billion to its 50 largest creditors since the bankruptcy filing, according to Reuters calculations. Its biggest borrower is crypto exchange Gemini, which owes $765.9 million. Gemini was founded by identical twin cryptocurrency pioneers Cameron and Tyler Winklevoss.
The two companies were already at loggerheads with Gemini over a crypto-lending product called Earn that they jointly offer to Gemini customers.
The Winklevoss twins said Genesis owed more than $900 million to 340,000 Earnings investors. On January 10, Cameron Winklevoss called for Barry Silbert to be fired as chief executive of the digital currency group.
An hour after the bankruptcy filing, Cameron Winklevoss tweeted that Silbert and Digital Currency Group were denying creditors a fair deal.
“If Barry (Silbert) and TCG do not come to their senses and make a fair offer to creditors, we will immediately file a lawsuit against Barry and TCG,” Winklevoss said in a tweet.
DCG did not immediately respond to a Reuters request for comment on the tweets.
Amsterdam-based crypto exchange Bitvao said in December it was trying to withdraw 280 million euros ($302.93 million).
Bitwao said in a blog post on Friday that talks on repayment “have not yet led to an overall agreement that works for all parties involved” and that it would continue to negotiate.
The bankruptcy filing “brings the negotiation process to calmer waters,” Bitwao said.
Genesis brokers digital assets to financial institutions such as hedge funds and asset managers $3 billion in total active loans At the end of the third quarter, that was down from $11.1 billion a year earlier, according to its website.
Last year, Genesis extended $130.6 billion in crypto loans and traded $116.5 billion in assets, according to its website.
Singapore-based crypto hedge fund Three Arrows Capital and Alameda Research, a trading firm closely linked to FTX, are two of its biggest borrowers, 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 filed a claim against Three Arrows. DCG’s portfolio companies also include crypto asset manager Grayscale and news service CoinDesk.
Crypto lenders that functioned as de facto banks flourished during the pandemic. But unlike traditional banks, they are not required to hold capital cushions. Earlier this year, a lack of collateral forced some lenders — and their customers — to bear large losses.
($1 = 0.9243 euros)
Reporting by Tom Halls in Wilmington, Delaware, Akanksha Khushi and Elizabeth Howcroft in London; Editing by Lannon Nguyen, Clarence Fernandez, Kim Coghill, Ira Iospashvili and Sharon Singleton
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