Will Genesis be the next to fall?

Today, a rumor about "Genesis going bankrupt tonight" spread on various social platforms, including industry KOLs who were discussing the matter, believing that Genesis may have solvency issues and the company will call creditors at 8:00am EST on November 17 to explain the situation. If the news is true, Genesis may sell ETHE and GBTC to repay lenders.

Through the selection of market news, it is found that people in various fields of the industry are not optimistic about the situation of Genesis. How come Genesis is suddenly rumored to be bankrupt?

Regarding this matter, Golden Finance sorted out the relevant events of Genesis in 2022 and found that 2022 was indeed a year of misfortune for Genesis, and the rumors of bankruptcy were not groundless.

Starting

If we were to ask who had the biggest influence on Genesis's closure, it would be Three Arrows Capital. According to previous Golden Finance reports, Genesis had provided a $2.36 billion loan to Three Arrows Capital (3AC). Due to the insufficient collateral of these debts, in June, Genesis tried to recover part of the loan by initiating arbitration proceedings against 3AC at the American Arbitration Association (AAA) in New York. After hiring consulting firm Teneo to oversee 3AC's liquidation at the end of June, Genesis stopped the arbitration.

But the matter is not over yet. On July 19, it was reported that Teneo, commissioned by Genesis, uploaded a 1,157-page court document, claiming $1.2 billion against the bankrupt Three Arrows Capital. According to the information in the document, Digital Currency Group, the parent company of Genesis, has assumed some of Genesis’ responsibilities in the case.

turmoil

The turmoil at Genesis caused by Three Arrows Capital did not stop with the lawsuit. The continued turmoil has spread to Genesis's personnel appointments and dismissals. According to previous reports by Golden Finance, Genesis CEO Michael Moro resigned in August, co-head of sales and trading Matt Ballensweig resigned in September, and chief risk officer Michael Patchen resigned in October. At the same time, the entire company laid off 20% of its employees.

In addition to personnel turmoil, transaction and loan amounts are also falling sharply. Genesis said in its third-quarter report that the company's loan originations and transaction volumes fell sharply in the third quarter of this year.

Genesis loan originations fell to $8.4 billion from July to September 2022. The third quarter saw a sharp drop in loans, down 79%, from $40.4 billion in the second quarter.

expand

Perhaps Genesis itself did not expect that the turmoil caused by Three Arrows Capital was far more than that. In addition to the company's personnel turmoil and financial issues, Genesis was also kicked out of the "group" by its brother Grayscale.

Grayscale has launched a new broker-dealer, Grayscale Securities, as an authorized participant in its crypto trust product, according to regulatory documents. The new division will replace its sister company Genesis, which was in trouble due to the collapse of Three Arrows Capital, and the transition period will take effect on October 3.

Although this document did not disclose the status of Genesis to the outside world, it also told the outside world that Genesis was in a "sick" stage.

The aftermath of the three arrows affected not only Genesis itself, but also DCG. No one could predict which would come first, the accident or tomorrow, and Digital Currency Group (DCG) did not expect that, perhaps due to the involvement of Genesis, as the parent company of Grayscale and Genesis, it needed to restructure. After the restructuring, DCG promoted its COO Mark Murphy to president and laid off 10% of its employees.

"We recently made a series of internal changes to DCG to position it for its next phase of growth, including streamlining our divisions while enhancing our leadership team," a DCG spokesperson said.

double click

After experiencing a series of turmoil, Genesis, which should have been resting and recuperating, once again felt the "malice" of the market.

Who would have thought that FTX, the industry's second-ranked exchange, the cryptocurrency acquisition maniac, and the industry's radical pioneer, would collapse in an instant. No one could tell whether it was caused by the curse of the industry's Hades Sun Ge, or because CZ was too sharp-tongued.

Anyway, FTX just collapsed, and before it left, it didn’t forget to kick Genesis, which was lying in the corner recovering from its injuries. According to data: FTX owes more than $5 billion in cash, $1.41 billion in Bitcoin, $800 million in USDT and $670 million in ETH, as well as loans to BlockFi, Genesis and LayerZero, with a total amount of nearly $9 billion.

Genesis was confused. How could I be shot while lying down? In order to avoid being "trampled", Genesis quickly stood up and announced that its derivatives department had $175 million in funds locked in the FTX trading account, but this would not affect its market-making operations.

DCG was also confused, but it couldn't just ignore it, so it announced an investment of US$140 million in Genesis to strengthen Genesis' balance sheet and consolidate its position in the crypto market.

Summarize

Finally, back to the topic, Genesis, which has been beaten by the market throughout 2022, is indeed in a precarious state, but whether it will go bankrupt cannot be confirmed through market news. However, in the current market environment, even the most outrageous things can happen, and investors still need to remain vigilant about the market.