The news follows reports that the company had been in negotiations with creditors to raise cash for its troubled lending unit.
Importantly, Genesis declared Chapter 11 bankruptcy. This means they seek to restructure their obligations to remain in business, not shut down.
But that will be a difficult task considering their extensive liabilities of $3.6 billion in total debt, including:
- $765.9 million in debt to Gemini
- $151.5 million owed to Singapore venture capital firm Mirana Corp
- Another $150 million owed to Hong Kong’s Babel Finance
- And on and on it goes, with 50 total creditors listed
Genesis has $150 million in cash on hand (plus $500 million in digital assets, and $385 million in shares in brokerage accounts) to fund the bankruptcy proceedings. Considering the herculean task ahead, they’ll likely need every penny.
The Bigger Picture
Nothing in crypto happens in a vacuum. Genesis’s bankruptcy will be felt throughout the crypto markets:
- Gemini is happy that Genesis’s dirty laundry will now be aired in court, but they still face an uphill climb to recovering their missing $765.9 million. That is because Gemini may have really messed up selling the GBTC that Genesis put up in a behind-the-scenes agreement between the two parties last year. Genesis asserts that all outstanding debt to Gemini is now invalid. If a court agrees with them, then Gemini Earn customers will be left severely in the red.
- Genesis is owned by Digital Currency Group (DCG), which also owns Grayscale, the keeper of the Grayscale Bitcoin ETF trust. It was previously feared that if Genesis went under, DCG would have to liquidate Grayscale’s Bitcoin (GBTC) to cover the losses. This would put an immense amount of Bitcoin selling pressure onto the market, tanking already depressed prices. Well, we might end up avoiding this doomsday scenario. Genesis’ bankruptcy filing revealed that 31 million of Grayscale’s GBTC has already been sold in recent months! This leaves about 35 million shares of GBTC left between Genesis and its parent company DCG, an amount that the market should be able to absorb much easier. TLDR: One of the scariest scenarios from Genesis and DCG’s troubles isn’t so scary anymore.
- If you’re in the mood for a migraine, try to follow the complex daisy chain of crypto leverage. As the chart shows, Genesis was central to funding everything that went wrong in 2022. However, this can be seen as a good sign, as Genesis is now the last domino to fall. In other words: we’ve flushed out everybody who can hurt us.
Like all major bankruptcy proceedings, Genesis’s will take a while, and not every creditor will leave happy.
However, this is a time to rejoice if you’re in crypto for the long haul. We’re now free from the incompetent actors who sent us spiraling in 2022, and should have a clean slate going forward. 🤞