A brutal week for embattled crypto broker Genesis has fanned fresh concerns about the health of its parent, Barry Silbert’s Digital Currency Group conglomerate.
(Bloomberg) — A brutal week for embattled crypto broker Genesis has fanned fresh concerns about the health of its parent, Barry Silbert’s Digital Currency Group conglomerate.
The latest blow came Thursday, when Genesis Global Trading Inc. announced that it laid off roughly 30% of its staff in the latest round of job cuts. That followed a letter to clients from Genesis interim Chief Executive Officer Derar Islim earlier this week saying it needed “additional time” to come up with a solution for a liquidity crunch at its lending unit.
That’s done little to assuage fears of a Genesis bankruptcy as the company attempts to raise fresh cash more than a month since halting withdrawals, with potential investors balking at the interconnectedness between Genesis and other companies in Silbert’s control, Bloomberg News reported recently. What a Genesis bankruptcy would mean for Stamford, Connecticut-based DCG — once valued at $10 billion — is the question mark hanging over the other pillars in the conglomerate’s control, which includes digital-asset manager Grayscale Investments LLC.
What happens to DCG, one of crypto’s last-standing empires, has widespread ramifications for an industry still reeling from the November implosion of digital-asset exchange FTX and the springtime collapse of the Terra stablecoin ecosystem.
“It’s bigger than almost anything else we could imagine,” said James Malcolm, head of foreign exchange and crypto research at UBS Investment Bank. “Specific to the $10.6 billion Grayscale Bitcoin Trust, they are the biggest crypto fund, so any resolution that involves liquidation would be another major setback.”
A DCG spokesperson didn’t immediately return requests for comment, nor did a Genesis representative.
Pressure has been mounting on Genesis since it revealed on Nov. 10 that it had $175 million locked in an FTX trading account, forcing the lender to abruptly halt withdrawals. Days later, the brokerage warned potential investors that it may need to file for bankruptcy without a cash infusion.
Two months later, tensions are boiling over. Gemini Trust Co. co-founder Cameron Winklevoss accused Silbert on Monday of intermingling funds within DCG companies and “bad faith stall tactics” that have left $900 million of Gemini customer assets needlessly in limbo since early November.
The bad blood boils down to Gemini’s lending product Earn, which offered investors the potential to generate as much as 8% in interest on their digital coins. That was facilitated by lending the crypto out to Genesis Global Capital, a relationship which abruptly imploded after November’s redemption halt. In Monday’s open letter, Winklevoss asked Silbert to “publicly commit to working together to solve this problem” by Jan. 8. He didn’t say what would happen if no agreement was reached by then.
DCG’s problems aren’t limited to Genesis. On Thursday, it announced that it will shutter its wealth-management division called HQ at the end of the month, due to the “prolonged crypto winter,” a DCG spokesperson said in an emailed statement. The cutback comes after DCG dismissed 10% of its staff at the end of last year.
The issues with Genesis and DCG have shone a spotlight on Grayscale — the “cash cow” of Silbert’s web, with GBTC generating hundreds of millions of dollars in annual fees. However, the asset manager has come under fire over the trust’s deep discount to its net asset value, a byproduct of the fact that it can’t redeem shares. That’s at the heart of a lawsuit from Fir Tree Capital Management, as well as a fledgling activist campaign.
“Many would like to move on from the counterparty risk debacles of 2022. It’s also bad press to outsiders or prospective new entrants. Most appear to be assuming this will remain a Genesis-lending specific issue,” said Stephane Ouellette, chief executive of FRNT Financial Inc, an institutional crypto platform. “That said, claimants are attempting to pull other assets related to Barry Silbert into the mix which would really complicate matters.”
–With assistance from Muyao Shen.
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