Crypto lender Genesis reportedly preparing for bankruptcy

This comes as a result of the decline in the cryptocurrency market and the failure of exchanges.
Kavita Verma
Bitcoin concept
Bitcoin

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Genesis Global Capital, a cryptocurrency lender, is laying the groundwork for bankruptcy this week. Bloomberg recently reported the news, citing individuals with knowledge of the situation. 

The crypto lending unit has been in confidential negotiations with multiple creditor groups in the middle of a liquidity crunch. The company recently warned that it could file for bankruptcy if it fails to raise cash. 

The representatives of the crypto lender did not immediately respond to the requests for comment. The sources said the talks would continue and the plans could change anytime. 

Where did it all go wrong?

Financial pressure at Barry Silbert's DCG began emerging after the hedge fund Three Arrows Capital collapsed. Genesis suspended withdrawals in November 2022, soon after the cryptocurrency exchange FTX filed for bankruptcy – Genesis held some of its funds in the FTX exchange. 

The failures produced ripple effects on the Gemini Trust cryptocurrency exchange run by Cameron and Tyler Winklevoss

Gemini Earn – a service used by Gemini's users to receive the yields for lending their coins through the company – also stopped the redemptions. 

According to the sources, Creditors, Digital Currency Group (DCG), and Genesis exchanged various proposals but failed to come to an agreement. Proskauer Rose and Kirkland & Ellis have been the advising groups of the creditors. 

What happens now?

The cryptocurrency lender is working on a restructuring plan, and it has swapped several proposals with its creditors in the past. The sources said that some creditors also suggested the company receive a mix of cash and equity from DCG. 

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DCG told shareholders that in an attempt to conserve cash, it started suspending the quarterly dividends in a letter on January 17, 2023.

CoinDesk, a DCG property and cryptocurrency news website, told Bloomberg that it engaged Lazard as a financial adviser to explore options, including a full or partial sale. 

On Thursday, Bitcoin experienced a decline after ending a rare 14-day streak of gains. The largest cryptocurrency saw a drop of up to 0.7%, with prices at around $20,700 as of 9:20 am in Tokyo. This shift in sentiment was driven by a cautious attitude replacing the risk appetite that had pushed up various assets at the beginning of the year. 

The industry is still dealing with the consequences of FTX

Other smaller cryptocurrencies, such as Solana, Ether, and Polkadot, also experienced moderate losses. Matt Maley, the chief strategist at Miller Tabak + Co, said, "Bitcoin at present has become much overbought and getting ready for a short-term pullback."

On Wednesday, U.S. shares declined, and Treasuries strengthened due to concerns about economic growth, and this negative sentiment also affected digital assets. The cryptocurrency industry is also still dealing with the consequences of the failure of the FTX exchange. 

The 14-day relative strength index for Bitcoin has decreased from over 90 but remains above the "overbought" threshold of 70. This suggests to some strategists that there may be a temporary halt in Bitcoin's upward momentum in 2023. 

Despite this, Bitcoin and a measure of the top 100 digital tokens have both increased by more than 20% this year, partially recovering from last year's decline in the digital asset market. This growth is driven by the belief that interest rate increases will cease as inflation slows. 

However, cryptocurrencies have lost approximately $2 trillion since reaching a peak in November 2021, leading to a number of failures and causing many institutional and individual investors to distance themselves from these assets.