Jan. 20 (Reuters) – The lending unit of crypto firm Genesis filed for US bankruptcy protection on Thursday, owing at least $3.4 billion, after being ousted by a market rout along with the likes of FTX exchange and lender BlockFi.
Genesis Global Capital, one of the largest cryptocurrency lenders, froze customer refunds on November 16 after the collapse of major exchange FTX sent shockwaves through the crypto-asset industry, sparking fears that other companies could go bust.
Genesis is owned by venture capital firm Digital Currency Group (DCG).
Its bankruptcy filing is the latest in a string of crypto failures stemming from a market crash that wiped out about $1.3 trillion worth of crypto tokens last year. While bitcoin has soared so far in 2023, the impact of the market crash continues to weigh on companies in the highly interconnected sector.
Ivan Kaczkovsky, a currency and crypto analyst at UBS, said the bankruptcy “doesn’t come as a shock to the markets.” “It remains to be seen if the impact of the series will continue.”
“However, since the funds have already been frozen for more than two months and no other large crypto company has reported an associated vulnerability, the infection is likely limited.”
Genesis’ lending unit said it had assets and liabilities in the range of $1 billion to $10 billion, and estimated it had more than 100,000 creditors on file with the US Bankruptcy Court for the Southern District of New York.
Genesis Global Holdco, the parent group of Genesis Global Capital, also filed for bankruptcy protection, along with other lending unit Genesis Asia Pacific.
Genesis Global Holdco said in a statement that it would consider a potential sale, or an equity deal, to pay off creditors, and that it had $150 million in cash to support the restructuring.
It added that Genesis derivatives, spot trading, brokerages and custody businesses were not part of the bankruptcy process, and will continue with client trading operations.
Genesis owes its 50 largest creditors $3.4 billion, according to Reuters calculations from its bankruptcy filing. Its largest creditor is cryptocurrency exchange Gemini, which it owes $765.9 million. Gemini was founded by cryptocurrency pioneers, identical twins Cameron and Tyler Winklevoss.
Genesis was already in a dispute with Gemini over a crypto lending product called Earn that the two companies jointly offered to Gemini customers.
The Winklevoss twins said Genesis owes more than $900 million to about 340,000 earning investors. On January 10, Cameron Winklevoss called for Barry Silbert to be removed as CEO of the Digital Currency Group.
About an hour after declaring bankruptcy, Cameron Winklevoss tweeted that Silbert and Digital Currency Group continued to deny creditors a fair deal.
“Unless Barry (Silbert) and DCG come to their senses and make a fair offer to creditors, we will file a lawsuit against Barry and DCG imminently,” Winklevoss said in his tweet.
DCG did not immediately respond to a Reuters request for comment on the tweets.
Amsterdam-based cryptocurrency exchange Bitvavo said in December it was trying to recoup 280 million euros ($302.93 million) it had lent to Genesis.
Bitvavo said in a blog post on Friday that talks about the payment “has not yet led to a comprehensive agreement that works with all parties involved” and that it will continue negotiating.
Petafo said the bankruptcy filing “makes the negotiation process much calmer.”
Genesis has brokered digital assets for financial institutions such as hedge funds and asset managers and has been approx $3 billion total active loans at the end of the third quarter, down from $11.1 billion a year ago, according to its website.
Last year, Genesis provided $130.6 billion in crypto loans and traded $116.5 billion in assets, according to its website.
Its two largest borrowers are Three Arrows Capital, a Singapore-based cryptocurrency hedge fund, and Alameda Research, a trading firm closely associated with FTX, a source told Reuters. Both are in bankruptcy proceedings.
Three Arrows’ debts owed by Genesis were assumed by parent company Digital Currency Group (DCG), which then sued Three Arrows. DCG portfolio companies also include crypto asset manager Grayscale and news service CoinDesk.
Cryptocurrency lenders, which acted as physical banks, thrived during the pandemic. But unlike traditional banks, they are not required to hold cushions of capital. Earlier this year, a shortage of collateral forced some lenders — and their customers — to take big losses.
($1 = 0.9243 euros)
Additional reporting by Tom Hales in Wilmington, Delaware and Akanksha Khushi and Elizabeth Howcroft in London; Editing by Lanan Nguyen, Clarence Fernandez, Kim Coghill, Ira Iosbashvili and Sharon Singleton
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