Genesis crypto lending unit files for US bankruptcy

20 Jan. (Reuters) – The lending unit of crypto firm Genesis filed for creditor protection on Thursday in the US bankruptcy, toppled by a market crisis along with exchange FTX and lender BlockFi, among others.

Genesis Global Capital, one of the largest crypto lenders, froze customer repayments on Nov. 16 after FTX stunned the financial world with its bankruptcy, fueling concerns that other companies could implode. The company is owned by venture capital firm Digital Currency Group (DCG).

The Genesis loan unit said it had both assets and liabilities between $1 billion and $10 billion, and estimated it had more than 100,000 creditors in U.S. Bankruptcy Court for the Southern District of New York.

Genesis Global Holdco, the parent group of Genesis Global Capital, has also filed for bankruptcy protection along with another loan unit Genesis Asia Pacific.

Genesis Global Holdco said in a statement it would consider a possible sale or share deal to pay creditors, and had $150 million in cash to support the restructuring.

It added that Genesis’ derivatives and spot trading, broker-dealer and custodian companies were not part of the bankruptcy process and would continue their trading activities for clients.

Genesis’ bankruptcy filing is the latest in a cascade of crypto failures and significant job losses following last year’s falling prices.

Genesis was already embroiled in a dispute with Gemini Trust Co, founded by identical cryptocurrency pioneers Cameron and Tyler Winklevoss, former US Olympic rowers. The two firms are fighting over a crypto loan product called Earn that they jointly offered.

The Winklevoss twins have said Genesis owed more than $900 million to about 340,000 Earn investors. On January 10, Cameron Winklevoss called for the removal of Barry Silbert as CEO of Digital Currency Group.

About an hour after the bankruptcy filing, Cameron Winklevoss tweeted that Silbert and Digital Currency Group continued to deny creditors a fair deal.

“Unless Barry (Silbert) and DCG come to their senses and make a fair offer to the creditors, we will soon be suing Barry and DCG,” said Winklevoss in his tweet thread.

Genesis and Gemini were charged on Jan. 12 by the U.S. Securities and Exchange Commission for illegally selling securities to investors through the Earn program. Tyler Winklevoss called the complaint disappointing.

Genesis brokered digital assets for financial institutions such as hedge funds and asset managers and had nearly $3 billion in active loans at the end of the third quarter, up from $11.1 billion a year earlier, according to the website.

Last year, Genesis issued $130.6 billion in crypto loans and traded $116.5 billion in assets, according to the website.

The two largest borrowers were Three Arrows Capital, a Singapore-based crypto hedge fund, and Alameda Research, a trading firm closely affiliated with FTX, a source told Reuters. Both are in bankruptcy proceedings.

Three Arrows’ debt to Genesis was assumed by parent company Digital Currency Group (DCG), which subsequently filed a claim against Three Arrows. DCG’s portfolio companies also include crypto asset manager Grayscale and news service CoinDesk.

Crypto lenders, acting as the de facto banks, have thrived during the pandemic. But unlike traditional banks, they are not required to hold capital cushions. Earlier this year, a shortage of collateral forced some lenders – and their clients – to take huge losses.

Reporting by Tom Hals in Wilmington, Delaware and Akanksha Khushi; Edited by Lananh Nguyen, Clarence Fernandez and Kim Coghill

Our Standards: The Thomson Reuters Principles of Trust.

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