NEW YORK - Suspended withdrawals at cryptocurrency brokerage Genesis amid the widening crypto-market meltdown have cast an unwanted spotlight on Mr Barry Silbert, the man at the helm of the Digital Currency Group (DCG) empire.
DCG’s reach is vast: In addition to embattled lender Genesis, DCG also controls digital asset manager Grayscale Investments, which offers the world’s largest crypto fund. DCG is also the parent of crypto-mining service provider Foundry Digital, news publication Coindesk and exchange Luno, among others. DCG declined a request for an interview with Mr Silbert.
Within the crypto space, DCG’s might is well known. The private firm’s portfolio has over the years included everything from exchanges like Coinbase to hardware-maker Ledger to crypto-focused bank Silvergate.
With Genesis’ halted redemptions, the health of DCG has been called into question, a spiral that follows the shocking blow-up of crypto exchange FTX and its former chief executive officer Sam Bankman-Fried. Genesis was the crown jewel of Mr Silbert’s kingdom, having established itself as one of the largest and most well-known brokers, allowing funds and market makers to borrow dollars or digital currencies to amplify their trades.
Mr Silbert, who hardly does press interviews and rarely speaks at industry conferences, founded US-based crypto conglomerate DCG in 2015, according to the 46-year-old’s LinkedIn profile. Last year, DCG’s valuation reached US$10 billion (S$13.7 billion), after it sold US$700 million of stock in a private sale led by SoftBank Group. DCG had 66 employees at the start of November and holds over 200 companies in its portfolio.
Mr Silbert first bought Bitcoin in 2012, when the industry was in its early aughts. Among the firm’s earliest employees were Mr Michael Moro, who departed the CEO role at Genesis in August, as well as Mr Ryan Selkis, co-founder of researcher Messari, and Ms Meltem Demirors, the chief strategy officer of rival digital-asset investment firm CoinShares.
Grayscale has been relatively unscathed by the latest upheaval – the firm was quick to say on Wednesday that its products are functioning as normal. Even still, the asset manager is dealing with its own set of issues. The US$10.7 billion Grayscale Bitcoin Trust (ticker GBTC) is trading at a record discount to the Bitcoin it holds, given that the trust’s structure does not allow it to redeem shares. Grayscale sued the US Securities and Exchange Commission in June after the regulator denied its application to convert GBTC into an exchange-traded fund.
But even with the record discount, GBTC is seen as a cash cow for Grayscale – and by extension, for DCG. The trust charges shareholders a 2 per cent annual fee. So even though GBTC has shed billions of dollars in value since total assets peaked at over US$40 billion last November, Grayscale would still collect over US$200 million in fees from the trust per year at current asset levels, calculations by Bloomberg show.
Genesis’ move on Wednesday affects only its lending business, according to interim CEO Derar Islim, who said its spot and derivatives trading and custody businesses “remain fully operational”. However, the decision to halt withdrawals comes after a painful stretch for the brokerage.
Cracks started to surface after Genesis got caught up in the bankruptcy of hedge fund Three Arrows Capital. Genesis was the biggest creditor ensnared in that collapse after the fund failed to meet margin calls. DCG assumed some liabilities and filed a US$1.2 billion claim against Three Arrows, which is under liquidation. Genesis said in October – before the FTX blow-up – that lending plunged 80 per cent in the third quarter.
“Genesis Global Capital, Genesis’ lending business, made the difficult decision to temporarily suspend redemptions and new loan originations... in response to the extreme market dislocation and loss of industry confidence caused by the FTX implosion,” said company spokesman Amanda Cowie. “This impacts the lending business at Genesis and does not affect Genesis’ trading or custody businesses. Importantly, it has no impact on the business operations of DCG and our other wholly owned subsidiaries.” BLOOMBERG
Amid the recent brewing turmoil, DCG has reshuffled its C-suite. Mr Mark Murphy was promoted to president from chief operating officer as part of a restructuring that saw about 10 employees exit the company. Meanwhile, a handful of Genesis’ trading-desk personnel have also departed, as have its head of market insights and its chief risk officer. BLOOMBERG