Crypto brokerage Genesis warns of bankruptcy without funding

Genesis has spent the past several days seeking at least US$1 billion (S$1.4 billion) in fresh capital. PHOTO: BLOOMBERG

WASHINGTON – Digital asset brokerage Genesis is struggling to raise fresh cash for its lending unit, and it is warning potential investors that it may need to file for bankruptcy if its efforts fail, according to people with knowledge of the matter.

Genesis, which faces a liquidity crunch in the wake of crypto exchange FTX’s bankruptcy filing in November, has spent the past several days seeking at least US$1 billion (S$1.4 billion) in fresh capital, the people said. This included talks over a potential investment from crypto exchange Binance, they said, but funding so far has failed to materialise.

“We have no plans to file for bankruptcy imminently,” a representative for Genesis said in an e-mail statement. “Our goal is to resolve the current situation consensually without the need for any bankruptcy filing. Genesis continues to have constructive conversations with creditors.”

A representative for Binance declined to comment.

The rush for funding was precipitated by a liquidity crunch at the lender after the sudden collapse of FTX, one of the world’s largest crypto exchanges. Genesis’ lending arm froze withdrawals last week after a separate unit revealed that it had US$175 million locked in its FTX trading account.

Meanwhile, shares of Grayscale Bitcoin Trust (GBTC), which closed at a record 45 per cent below the value of its underlying coins last Friday, fell another 5 per cent on Monday. GBTC – the world’s biggest exchange-traded Bitcoin fund – has fallen to a greater degree than Bitcoin itself.

Shares are being offloaded in the secondary market as the industry deals with shockwaves from FTX’s bankruptcy. This sent the likes of Genesis into a tailspin, fuelling questions about the health of its parent company, Digital Currency Group (DCG), which also controls digital asset manager Grayscale Investments.

Fears of fallout among shell-shocked investors likely explain why GBTC is selling off to a greater degree than Bitcoin itself, according to Bloomberg Intelligence.

“There is a lot of concern and news reports and rumours about DCG, the parent of Grayscale,” said Bloomberg Intelligence analyst James Seyffart.

“I think people just want to get away from anything that could be coming down, even if it is only a remote possibility.”

GBTC’s share price has plunged 77 per cent in 2022, compared with Bitcoin’s 65 per cent fall. While GBTC has soared 1,000 per cent since the end of 2015, the world’s largest cryptocurrency has surged more than 3,600 per cent in that timeframe.

Bloomberg Intelligence estimates that GBTC holds more than 3 per cent of all mined Bitcoin, which is custodied with Coinbase Global. Last Friday, Grayscale shared a letter from Coinbase chief financial officer Alesia Haas saying that the trust’s coins are in cold storage and cannot be lent out. BLOOMBERG

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