Nov 21, 2022 - Economy

Silence from Digital Currency Group's Genesis spooks crypto

Illustration of pixelated coins falling as dominos.

Illustration: Aïda Amer/Axios

Genesis Global Trading has been eerily silent after announcing last week that its crypto lending unit would halt services in light of FTX's collapse.

State of play: Five days have passed since its lending unit ceased withdrawals and new loan originations. And the lack of communication has opened the door to speculation about the health of the overall firm, as well as its parent Digital Currency Group and sister unit Grayscale Investments.

Threat level: If Genesis were dealing with insolvency concerns and were to file for bankruptcy, that would imperil Digital Currency Group.

  • It is only speculation. There has been no reporting to suggest this outcome.

Why it matters: Digital Currency Group, or DCG, founded by Barry Silbert in 2015, is among the largest crypto companies, sporting a valuation of $10 billion just last year.

  • It holds investments in some 165 companies, from public companies including Coinbase Global to well-known private shops Ripple and Ledger.
  • In other words, a hurt DCG would have industrywide repercussions.

Neither DCG nor Genesis responded to Axios' emailed queries.

Catch up quick: Genesis said on Nov. 16 that it expected to detail its plans this week.

  • In that announcement, it said it would "temporarily suspend" services, citing "unprecedented market turmoil" related to FTX's collapse that was driving customers to ask for withdrawals.
  • The firm said the heightened withdrawal level exceeded what it was able to handle.
  • "We have hired the best advisors in the industry to explore all possible options," Genesis Trading tweeted then. "Next week, we will deliver a plan for the lending business."

The latest: As the market awaits that update, Crypto Twitter has been on edge. Folks are openly debating about the health of Genesis, DCG and its affiliated units.

  • Some are watching for changes on the company website, with one observing that DCG had dissolved the team's "about page."

Context: Genesis Global said it had roughly $175 million of digital assets stranded on FTX's platform.

  • The firm's liquidity had already been hobbled by the collapse of Three Arrows Capital in June.
  • Flashback: Genesis got a $140-million emergency equity infusion of liquidity from DCG, but that does not appear to be enough.

Of note: Amid widespread concerns about solvency, Grayscale announced Friday it would not release a proof-of-reserves for its assets under management. Today, its custodian Coinbase showed what reserves were as of Sept. 30.

  • Meanwhile, the Grayscale Bitcoin Trust continues to trade at a massive discount of roughly 40% to the underlying bitcoin it holds.

What we're watching: Any signs of more trouble brewing at DCG or its subsidiaries.

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