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Genesis seeks cash injection
If you are unfamiliar with Genesis Trading, maybe you should. They represent the basic infrastructure of the institutional investor base in the Bitcoin and cryptography markets in the broad sense. For lending, trading, hedging, exchange yields and more, Genesis Trading was the brokerage to facilitate all of this activity in the space. Remember those juicy returns from BlockFi and Gemini Earn products in space? Genesis is the intermediary between these platforms and hedge funds to generate this return.
Genesis held a brief customer call to announce the suspension of redemptions, withdrawals and new loans. With an exhibition at FTX and Alameda Research, the company now needs a new injection of liquidity after having nearly $ 175 million blocked in a trading account With FTX. As the first response, the parent company Digital Currency Group (DCG, the parent company of Grayscale), injected $ 140 million into the company to ensure the proper functioning of operations. Yet Genesis is now scrambling to find more capital. That’s the reason Gemini win had to stop taking samples.
Although Gemini has declared that the rest of his operations operated normally, the limitation of the Gemini Earn product and service interruptions on the platform seem to have triggered a small rush to withdraw the bitcoin from the exchange: 13 % of the total balance de Bitcoin has gone. in the last 24 hours. As we’ve pointed out before, exchanges aren’t the place to be for your bitcoin, especially when there’s a high probability that there’s another exchange (or even several) left to go down.
To give you an idea of the size, Genesis had $50 billion in loans In a quarter and a portfolio of active loans of $ 12.5 billion at the top of the market in 2021. However, the grants of loans and the active loans portfolio have both suffered a strong haircut, falling to $ 8.4 billion and $ 2.8 billion Respectively, in the third quarter of this year. In July, Genesis filed a $1.2 billion claim Against Three Arrows Capital which was taken over by DCG to keep the blows out of Genesis’ books. The loans were partially guaranteed by GBTC, Ethe, Avax and Near chip actions.
We know about chain activity that Genesis had tons of interactions With Alameda, Gemini and Blockfi via their OTC negotiation office; FTT was also one of the main tokens received and sent to this activity. Without Genesis sharing more details, we do not know the extent of the exhibition and capital necessary to make customers whole. However, the fact that the parent company DCG has not yet intervened to provide another injection of liquidity is a warning sign on the place where it could lead. News has surfaced that Genesis is immediately seeking a $1 billion credit facility. Not good.
In the worst case, the lack of funding provided by the DCG could arouse questions about accessible liquidity. DCG and Grayscale have Disharged trustee before and this option is not on the table. This is an unlikely path but certainly worth highlighting since Grayscale is the largest bitcoin holder via the Grayscale Bitcoin Trust, holding almost 633,600 bitcoin. This could easily be a regulatory issue or some other limitation (which we don’t know about) where DCG cannot provide the capital to Genesis.
Circle, the emitter of the Stablecoin USDC, also has links with Genesis. However, they emphasize that their product Circle Yield is only $2.6 million of outstanding guaranteed loans, which, if true, is quite insignificant.
We’ll likely hear more about the state of Genesis in the coming days as they want/need the capital injection by Monday. It would be a blow to a long list of institutions in the sector if withdrawals remained suspended and funds blocked. Genesis reflects the exact reason why the global contagion of the collapse of FTX and Alameda Research has yet to occur. Defaults and insolvencies come in waves, not all at once. It takes weeks and months to see where the biggest holes are and that has liquidity, counterpart and/or insolvency problems.
On top of that, almost all major players and market makers have withdrawn their cash from exchanges to shore up their own balance sheets and reduce counterparty risk. The liquidity on the market is thin and the time has come to ensure volatility. Although the market appeared to find a temporary bottom amid all the negative headlines over the past week, the unknown downside risk still far outweighs the short-term upside potential.