Genesis Global Capital hired an investment firm named Moelis & Company to explore options, including a potential bankruptcy. Since FTX’s meltdown, Genesis has been trying to negotiate with creditors and raise funds to recover from its exposure to the now-defunct exchange. It also suspended depositors’ withdrawals and origination of new loans – which, in the crypto world, is often the first sign that an organization is about to go under.
Genesis Global Capital’s derivatives wing had $175 million in FTX at the time it froze withdrawals and then filed for bankruptcy. After FTX collapsed, Genesis’ parent company, Digital Currency Group (DCG), sent it an equity infusion of $140 million to pad its books.
DCG previously borrowed $575 million from Genesis Global capital to repurchase stock from non-employee shareholders and fund investment opportunities. This loan is due in May 2023.
Genesis also lost the hundreds of millions of dollars it loaned to Three Arrows Capital (3AC) when 3AC went under. DCG CEO Barry Silbert mentioned a $1.1 billion promissory note from the 3AC loan that is due in June 2032 while communicating with investors.
Genesis currently has $2.8 billion in outstanding loans on its books. 30% of these loans are to related companies, including DCG or companies that DCG has an equity stake in. It also made higher-risk unsecured loans to clients looking to raise funds for crypto trading during the bull market.
Similar practices contributed to the bankruptcies of major crypto industry organizations like Celsius Network, which made ill-advised moves like lending clients’ deposits to the now-defunct Terra’s Anchor Protocol. Celsius Network could pull $500 million out of Anchor Protocol, but that wasn’t enough to save it.
Meanwhile, sister company Grayscale maintains that its finances are fine despite refusal to show its proof-of-reserves, as other companies have done in the wake of FTX’s bankruptcy. Grayscale Bitcoin Trust shares were trading at a 45% discount on November 21, which ARK Invest seems to view as a buy opportunity despite the risk.
Genesis Global Capital has not made any firm decisions on a possible restructuring yet. Potential investors that it is currently in talks with reportedly include Binance and Apollo. Binance could also place a bid for its loan book.