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Genesis Seeks Liquidity Injection
If you don’t know about Genesis Trading, maybe you should. They represent the core infrastructure of the institutional investor base in bitcoin and the broader cryptocurrency markets. For lending, trading, hedging, swap returns and more, Genesis Trading was the broker to facilitate all of this activity in the space. Remember the juicy returns from BlockFi and Gemini Earn in the space? Genesis is an intermediary between these platforms and hedge funds to generate this income.
Genesis held a short customer call to announce that refunds, withdrawals, and new loans have been suspended. With exposure to FTX and Alameda Research, the company now needs another injection of liquidity after locking up about $175 million in a trading account with FTX. In an initial response, parent company Digital Currency Group (DCG, parent company of Grayscale) injected $140 million into the business to keep operations running smoothly. However, Genesis is now struggling to find more capital. This is the reason Win twins had to stop the extraction.
Although Gemini says the rest of its operations are running normally, the limitation of the Gemini Earn product and the service outage on the platform led to a small rush to delist bitcoin: 13% of the total bitcoin balance remained. in the last 24 hours. As we’ve emphasized before, exchanges are not the place for your bitcoins, especially when there’s a good chance there’s another exchange (or even a few) left to fall to.
To give you an idea of the size, Genesis had $50 billion in loans in one quarter and an active loan book of $12.5 billion at the market peak in 2021. However, loan originations and the active loan book both took a big 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 lawsuit against Three Arrows Capital, which was acquired by DCG to keep the hit Genesis books. The loans were partially secured by shares of GBTC, ETHE, AVAX and NEAR tokens.
Source: Genesis Quarterly Report
we know from Chain action with tons of interactions of creation via OTC trading desk with Alameda, Gemini and BlockFi; FTT was also the top token received and sent in this activity. Without Genesis sharing more details, we don’t know the degree of exposure and capital needed to make customers whole. However, the fact that DCG has not already stepped in to provide the parent company with another liquidity injection is a warning sign of what this could entail. The news about it came to light Genesis is seeking an immediate $1 billion loan facility. Not good.
In a worst-case scenario, a lack of funding provided by DCG could raise questions around available liquid assets. There is DCG and Grayscale previously revoked trusts and that option is not off the table. It’s a tough road, but certainly worth highlighting because Grayscale is the largest bitcoin holder through the Grayscale Bitcoin Trust, which holds approximately 633,600 bitcoins. It could easily be a regulatory issue or some other limitation (that we don’t know about) where DCG can’t provide capital to Genesis.
Source: Coinglass.com
Circle, the issuer of the stablecoin USDC, also has ties to Genesis. However, they highlight the Circle Yield product is only 2.6 million dollars If true, in secured loans that are fairly insignificant.
We’ll hear more about the Genesis situation in the coming days as they want/need a capital injection by Monday. If withdrawals are halted and funds are blocked, it will be a major blow to the laundry list of institutions in the industry. Creation reflects the exact reason why the general contagion of the collapse of FTX and Alameda Research has not yet occurred. Defaults and bankruptcies come in waves, not all at once. It takes weeks and months to see where the biggest gaps are and who has liquidity, counterparty and/or insolvency issues.
In addition, nearly every major player and market maker has pulled cash from exchanges to bolster their balance sheets and reduce counterparty risk. Liquidity in the market is poor and the time is ripe for volatility to emerge. Although the market has found a temporary bottom amid all the negative headlines over the past week, the unknown downside risk still far outweighs the upside potential in the short term.
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