Crypto Contagion: Troubled Crypto Lender Genesis, Barry Silbert, And The Web Of Loans!

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Genesis Global Capital, the troubled crypto lender, has hired the investment bank Moelis & Company to explore options, including a potential bankruptcy, the New York Times reports. Insiders told the NYT that no final decisions had been made and that it was still possible for the company to avert a bankruptcy filing. Genesis was a trading partner with FTX and said that $175 million of its assets were stuck at FTX when the exchange froze accounts shortly before filing for bankruptcy this month.

Genesis is a subsidiary of the Digital Currency Group (DCG). Its CEO, Barry Silbert, has written to DCG shareholders to reassure them of its viability as fears rise for the potential Genesis bankruptcy.

This is an issue of liquidity and duration mismatch in the Genesis loan book,” Silbert explained. “Importantly, these issues have no impact on Genesis’ spot and derivatives trading or custody businesses, which continue to operate as usual.

However, DCG owes Genesis $ 575 million worth of loans due in May 2023, which were used to fund DCG’s stock buybacks, as well as investments, Silbert said. It also has a $1.1 billion promissory note due in 2032, which arose when DCG assumed the liabilities of Genesis related to the collapse of digital asset hedge fund Three Arrows Capital (3AC) over the summer.

Last week, Genesis suspended withdrawals because of liquidity issues. As of the third quarter, Genesis had $2.8 billion in active loans, according to a quarterly statement from the lender. In 2021, it traded $116 billion worth of crypto, originated $131 billion worth of loans, and has more than 1,000 institutional trading counterparties. Bloomberg reports that about 30% of its lending is made to related parties, including DCG.

It has become apparent over the past few months in the wake of the collapse of Terra-Luna and crypto hedge fund Three Arrows Capital (3AC) that the entire crypto scene is tightly intertwined. Thus, the contagion is spreading at an enormous speed. Who will be left in the end is impossible to estimate at the moment.

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