Jan 20 (Reuters) – The credit unit of cryptocurrency firm Genesis filed for U.S. bankruptcy protection on Thursday, owing at least $3.4 billion to lenders after the stock market failed along with exchange FTX and lender BlockFi.
Genesis Global Capitalhas frozen a leading crypto lender customer payments where November sent shockwaves through the 16 cryptocurrency sectors after the collapse of the major exchange FTX.
It is owned by the venture capital firm Genesis Digital Currency Group (DCG).
His bankruptcy filing is the latest cryptocurrency failure It was caused by a market crash last year that wiped out about $1.3 trillion in the value of cryptotokens. While Bitcoin has rallied so far in 2023, the market crash has continued to reverberate through the highly interconnected sector.
Ivan Kaczkowski, currency and cryptocurrency strategist at UBS, said the bankruptcy was “not a shock to the markets”. “Whether the ripple effect will continue remains to be seen.”
The company’s filing with the U.S. Bankruptcy Court for the Southern District of New York estimated it had more than 100,000 creditors, assets worth $5.3 billion and debt, including intercompany liabilities, of $5.1 billion as of November. 30
Genesis announced its plan to exit bankruptcy by May 19, according to court filings. It will try to sell its assets at auction within three months to pay creditors, court documents say.
Genesis Global Capital’s parent, Genesis Global Holdco, has filed for bankruptcy protection along with its other credit unit, Genesis Asia Pacific.
Genesis Global Holdco said in a statement that it would consider a potential sale or stock transaction to pay off creditors and that it has $150 million in cash to support the restructuring.
It added that Genesis’ subsidiaries and spot trading, broker dealer and custodial businesses are not part of the bankruptcy process and will continue to trade with customers.
DCG, the owner of Genesis, said in a statement that neither DCG nor its employees, including those who sit on the Genesis board, were involved in the decision to declare bankruptcy.
“Genesis has its own independent management team, legal counsel and financial advisors and has appointed a special committee of independent directors responsible for the restructuring of Genesis Capital,” the statement said.
CLAIMS OF CREDITORS
Genesis owes $3.4 billion to its 50 largest creditors, according to Reuters estimates from its bankruptcy filing. Its largest creditor is $765.9 million owed to Gemini, the cryptocurrency exchange founded by identical twins Cameron and Tyler Winklevoss, cryptocurrency pioneers and former US Olympic rowers.
Genesis was embroiled in a dispute with Gemini over the two firms’ crypto lending product, Earn. offers jointly To Gemini’s clients.
The Winklevoss twins said Genesis owed more than $900 million to about 340,000 Earn investors. Where is January. 10, Cameron Winklevoss called for removal Barry Silbert as CEO of Genesis parent DCG.
About an hour after the bankruptcy filing, Cameron Winklevoss tweeted that Silbert and DCG’s creditors continued to refuse a fair deal and threatened to sue them if they “don’t make a fair offer to creditors.”
In December, Amsterdam-based cryptocurrency exchange Bitvavo said it was trying to recoup the 280 million euros ($302.93 million) it had lent to Genesis. Bitvavo said in a blog post on Friday that the payment talks “have not yet led to an overall agreement that works for all stakeholders” and that it would continue to negotiate.
The bankruptcy filing “brings the negotiation process into calmer waters,” Bitvavo said.
LOAN BUSINESS
Genesis brokered digital assets for hedge funds and asset managers, and almost had $3 billion in active loans at the end of the third quarter, down $11.1 billion from a year ago.
Last year, Genesis issued $130.6 billion in crypto loans and traded $116.5 billion in assets.
Its two biggest borrowers were Three Arrows Capital, a Singapore-based crypto hedge fund, and Alameda Research, a trading firm closely linked to FTX, the source told Reuters. Both are in bankruptcy proceedings.
DCG, Genesis’ parent, assumed Three Arrows’ debt to Genesis and then filed suit against Three Arrows. DCG’s portfolio companies also include cryptocurrency manager Grayscale and news service CoinDesk.
A special committee is investigating transactions in the months leading up to the bankruptcy to determine whether Genesis has legal claims it can pursue, court documents say.
Those claims include Genesis Global Capital’s $850 million loan to DCG and its transfer of a bankruptcy case against Three Arrows Capital to DCG in exchange for a $1.1 billion promissory note. The special committee is also looking into whether Genesis could cancel some of its obligations to the Twins, according to the documents.
Acting as de facto banks, crypto lenders have soared during the pandemic. But unlike traditional banks, they are not required to maintain capital cushions. Earlier this year, a foreclosure shortage forced some lenders and their customers to face huge losses.
($1 = 0.9243 euros)
Reporting by Tom Hals in Wilmington, Delaware, Akanksha Khushi and Elizabeth Howcroft in London; Edited by Lananh Nguyen, Clarence Fernandez, Kim Coghill, Ira Iosebashvili, Sharon Singleton, and David Gregorio
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