Digital Currency Group Breaks Silence As Market Hangs In The Balance

News breaks that Genesis is headed toward potential bankruptcy. The market hangs on the edge of new lows as many await the impact of the contagion. Coinbase equity and debt trade in the market showing

Relevant Past Articles: 

• The Bigger They Are…

• The Exchange War: Binance Smells Blood As FTX/Alameda Rumors Mount

• Counterparty Risk Happens Fast

• The Crypto Contagion Intensifies: Who Else Is Swimming Naked?

• The Contagion Continues: Major Crypto Lender Genesis Is Next On The Chopping Block

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Previously, we told subscribers that we would release an in-depth FTX contagion report on Friday, November 18. As more details and news continue to surface along with the ongoing Digital Currency Group developments, we’re delaying the release of the report until early next week. Our continued analysis  of these rapidly changing market dynamics in real-time will allow us to provide a more detailed and thorough report. Thank you for understanding the delay.  

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Digital Currency Group And Genesis Saga Continues 

Before we get into today’s piece, it’s important to remember that there is an alarming amount of speculation versus actual information in the market discussion right now. This includes our own speculation while trying to analyze this situation in real-time. It’s not our intention to fuel fear or FUD in the market but rather lay out facts, data, analysis and potential scenarios as we see it. 

Last week, we highlighted the ongoing situation with Genesis, which is owned by parent company Digital Currency Group (DCG). Read The Contagion Continues: Major Crypto Lender Genesis Is Next On The Chopping Block. Genesis was looking for a $1 billion credit facility by yesterday for their lending division. Shortly after Monday’s close, news broke that Genesis is on the path toward bankruptcy after failing to raise the cash at this time. It was also announced that they approached Binance and Apollo for a potential deal and that Genesis is now seeking $500 million instead of $1 billion. Digital Currency Group followed up with their own letter today detailing liabilities between the two companies. 

DCG and Genesis are closely linked and it makes sense that DCG has likely tried to take necessary steps to potentially save Genesis. Genesis and Grayscale are the key players in their portfolio. DCG is at risk of going down if a deal can’t be worked out with Genesis. Yet, we only have a few news headlines and sparse information to go on for now. More details will come out in the following days surrounding details about Genesis, DCG’s potential moves and the full extent of exposure. Here’s the optimistic case for a resolution. 

There’s still many contagion scenarios that can play out on the news. We now know that Genesis has $2.8 billion in outstanding loans on its balance sheet while DCG has a liability of $575 million to Genesis due in May 2023. In under two weeks, Genesis went from announcing no material credit exposure, to losing $7 million, to announcing $175 million stuck with FTX, to halting withdrawals and new loans, to needing $1 billion and now potential bankruptcy. Latest news is that the company is still attempting to fundraise by Wednesday this week, but has hired a team to explore a bankruptcy path as well. 

One of the scenarios to potentially save Genesis or to just raise liquidity, may include Genesis and DCG selling their GBTC holdings to raise additional funds. In fact, it’s pretty clear that someone with size has been selling GBTC holdings. In less than a week, GBTC is down over 23% in a fairly illiquid market (nearly double bitcoin’s drawdown). We know that DCG is the largest holder of GBTC making up nearly 10% of shares in the latest Q3 filing. At the same time, GBTC had been selling off and the discount reached 50%, Cathie Wood and ARK Invest ended up buying an additional 176,945 shares yesterday.