Bitcoin rushes after Grayscale owner DCB reveals $2 billion in debt

Barry Silbert, founder and CEO of Digital Currency Group, said that cryptocurrencies can weather the winter cold. Image: NBCUniversal via Heidi Gutman/CNBC/NBCU Photo Bank/Getty

Grayscale owner DCB has revealed it is $2bn (£1.65bn) in debt, making bitcoin’s value look increasingly precarious due to the company’s holdings of digital assets and troubled cryptocurrency lender Genesis.

Grayscale Bitcoin Trust is one of the world’s largest holders of bitcoin (BTC-USD), with a total value of 643,572 BTC, worth $10.6 billion. This is about 3% of all bitcoin in existence.

The Grayscale cryptocurrency may be affected by the recent collapse of FTX, as its parent company Digital Currency Group (DCG) also owns Genesis, which was forced to stop withdrawing customers.

The lending platform has $175 million locked up in bankrupt stock exchange FTX, and investors are waiting to see if DCG will bail out its struggling subsidiary.

In a note to shareholders on Tuesday, DCG founder Barry Silbert sought to calm investors’ nerves about the financial health of DCG subsidiaries Genesis, Grayscale Investments and mining company Foundry.

Check out: Live cryptocurrency prices

Silbert wrote: “We’ve been through previous crypto winters, and while this one may seem harsher, we’ll come out of it stronger together.”

According to Reuters, Genesis needs $1 billion in capital. DCG has just over $2 billion in debt, and the company has loaned Genesis about $575 million. It also absorbed $1.1 billion in debt owed to Genesis by bankrupt cryptocurrency hedge fund Three Arrows Capital.

Genesis Global Capital has reportedly hired investment bank Moelis & Co to explore options, including potential bankruptcy.

Crypto commentator TradFiWhale He said on Twitter: “DCG’s Grayscale work is extremely valuable.

“DCG doesn’t want to stop this sale, so they’re going to let Genesis go under.

“Generation will probably file for bankruptcy, I think the creditors will get most of the money back and DCG will survive with a black eye and a tarnished reputation.”

Watch: Bitboy Warns Crypto After FTX Scandal Get your money out of exchanges | Crypto Mile

DCG tweeted: “The impact applies to the credit business at Genesis and does not affect Genesis’ trading or storage business.

“Importantly, this interim measure has no impact on the business operations of DCG and our other wholly-owned subsidiaries.”

Genesis could be the last domino to fall in a few months from the May crash of Terra’s UST/Luna (LUNA1-USD) that wiped out Three Arrows Capital, Voyager Digital ( VYGVQ ) and ultimately FTX.

However, since Genesis is an institutional lender, the impact of its fall could have wider market reverberations.

Read more: After FTX scandal, Bitboy warns Crypto: “Get your money out of exchanges”

Cryptocurrency is estimated to be the main broker of the entire cryptocurrency ecosystem, a place for institutions to access the cryptocurrency markets.

“Will Genesis Bring All Crypto Down?” asked David Hoffman of the Bankless podcast on Thursday.

Silbet said: “Despite challenging industry conditions, I am as excited as ever about the potential of cryptocurrencies and blockchain technology in the coming decades, and DCG is determined to remain at the forefront.”

On Friday, bitcoin fell 1.7% over the past week to $16,471, while ether (ETH-USD) fell 1.6% to $1,182.

FTX collapse

After the collapse of FTX caused a number of related crypto-lending platforms to stop withdrawing customers, some supporters looked to decentralized exchanges (DEXs) as a solution.

DEXs are a type of cryptocurrency exchange that allows direct cryptocurrency transactions from one digital wallet to another without the need for an intermediary and with user funds remaining in a wallet owned by that user.

However, what initiatives are actually emerging from the decentralized finance space to address the problem of insolvency on centralized platforms?

A collection of decentralized exchanges such as Drift Protocol, GMX and Perpetual Protocol are “creating a big picture” that they promise will allow greater transparency for institutional and retail users.

This new summary table will provide information on proof of deposits, insurance funds and borrowing levels.

Read more: FTX bankruptcy sees 80,000 UK crypto investors lose funds

The collective told Yahoo Finance UK: “We already have a solution to the problems posed by the collapse of FTX, decentralized finance, and we need to work together to prove its worth.

“Our biggest fear is that this event will be used to advance a technology that was built to prevent this in the first place. Now is the time to build on the promise of DeFi.”

Organizations running decentralized exchanges are reaching out to global regulators to start a dialogue to improve the industry’s transparency and security.

Drift Protocol, GMX and Perpetual Protocol told Yahoo Finance UK: “DeFi is primitively designed to prevent the loss of customer deposits that has happened to date. Although the difference can be confusing for non-crypto-savvy people.

“We are here, ready, willing and able to guide any regulator through the clear distinctions that separate DeFi from CeFi.

“We welcome meaningful and productive engagement with regulators to move this space forward.”

See: What did Karl Marx think about cryptocurrency? – The Crypto Mile Episode 7

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