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Genesis crypto lending unit files for US bankruptcy

Genesis crypto lending unit files for US bankruptcy
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Jan 20 (Reuters) – The lending unit of crypto firm Genesis filed for US bankruptcy protection on Thursday and owes creditors at least $3.4 billion after being toppled by a market crisis along with exchange FTX and lender BlockFi.

Genesis Global Capitala leading crypto lender, frozen Customer Returns he Nov. 16 after the collapse of major exchange FTX sent shockwaves through the crypto sector.

Genesis is owned by a venture capital firm Digital currency group (DCG).

The bankruptcy filing is the latest crypto error sparked by a market slump that wiped out roughly $1.3 trillion in value from crypto tokens over the past year. While Bitcoin has rallied so far in 2023, the market’s collapse has repeatedly resonated through the highly connected sector.

The bankruptcy “doesn’t come as a shock to the markets,” said Ivan Kachkovski, currency and crypto strategist at UBS. “It remains to be seen whether the chain effect will last.”

The company’s filing with the US Bankruptcy Court for the Southern District of New York estimates that it had more than 100,000 creditors, its assets were worth $5.3 billion and its debts, including intercompany debt, were $5.1 billion were. 30

According to court filings, Genesis outlined a plan to end the bankruptcy by May 19. It will seek to sell its assets at auction within three months to repay creditors, court documents say.

Genesis Global Holdco, the parent company of Genesis Global Capital, also filed for bankruptcy protection along with another lending entity, Genesis Asia Pacific.

Genesis Global Holdco said in a statement that it would consider a potential sale or stock-related transaction to pay creditors and had $150 million in cash to support the restructuring.

It added that Genesis’ derivatives and spot trading, broker-dealer and custody businesses were not part of the bankruptcy proceedings and would continue with its client trading operations.

Genesis owner DCG said in a statement that neither DCG nor its employees, including those who sit on the Genesis board, were involved in the decision to file for bankruptcy.

“Genesis has its own independent management team, legal and financial advisors and has appointed a dedicated committee of independent directors responsible for the transformation of Genesis Capital,” the statement said.

CLAIM OF CREDITORS

Genesis owes its top 50 creditors $3.4 billion, according to Reuters calculations from the bankruptcy filing. It owes $765.9 million to its largest creditor, crypto exchange Gemini, founded by identical twins Cameron and Tyler Winklevoss, cryptocurrency pioneers and former US Olympic rowers.

Representations of cryptocurrencies are shown in front of the displayed chart of declining stocks in this image taken on November 10, 2022. REUTERS/Dado Ruvic/Illustration

Genesis was embroiled in a dispute with Gemini over a crypto lending product called Earn that the two companies had offered together for Gemini customers.

The Winklevoss twins said Genesis owed more than $900 million to around 340,000 Earn investors. He Jan 10, Cameron Winklevoss called for removal by Barry Silbert as CEO of Genesis parent company DCG.

About an hour after filing for bankruptcy, Cameron Winklevoss tweeted that Silbert and DCG continued to refuse creditors a fair deal and threatened to sue them unless they made the creditors a fair offer.

In December, Amsterdam-based crypto exchange Bitvavo announced that it was trying to recover €280 million ($302.93 million) it loaned to Genesis. On Friday, Bitvavo said in a blog post that talks about the repayment “have not yet resulted in an overall agreement that works for all parties involved” and will continue to be negotiated.

The bankruptcy filing “puts the negotiation process in calmer waters,” Bitvavo said.

LOAN BUSINESS

Genesis brokered digital assets for hedge funds and wealth managers and almost had Total active credits of $3 billion at the end of the third quarter, down from $11.1 billion a year earlier, according to the site.

Last year, Genesis originated $130.6 billion in crypto loans and traded $116.5 billion in assets, the website showed.

Its two largest borrowers were Three Arrows Capital, a Singapore-based crypto hedge fund, and Alameda Research, a trading firm closely affiliated with FTX, a source told Reuters. Both are in bankruptcy proceedings.

Genesis parent company DCG assumed Three Arrows’ debt to Genesis and then filed a lawsuit against Three Arrows. DCG’s portfolio companies also include crypto asset manager Grayscale and news service CoinDesk.

A special committee is examining transactions that took place in the months leading up to the bankruptcy to determine whether Genesis has any legal claims it could assert, court documents say.

Those claims include Genesis Global Capital loaning $850 million to DCG and assigning its bankruptcy claim against Three Arrows Capital to DCG in exchange for a $1.1 billion promissory note. The select committee is also investigating whether, according to the files, Genesis could void some of its obligations to Gemini.

Crypto lenders, which acted as de facto banks, have boomed during the pandemic. In contrast to traditional banks, however, they do not have to maintain a capital buffer. Earlier this year, a lack of collateral forced some lenders – and their customers – to suffer big losses.

($1 = 0.9243 euros)

Reporting by Tom Hals in Wilmington, Delaware, Akanksha Khushi and Elizabeth Howcroft in London; Editing by Lananh Nguyen, Clarence Fernandez, Kim Coghill, Ira Iosebashvili, Sharon Singleton and David Gregorio

Our standards: The Thomson Reuters Trust Policy.

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