A new cryptocurrency giant has just conceded defeat. After losing millions of dollars in the FTX crash, the Genesis platform has in fact filed for bankruptcy… hurting over 100,000 investors. This latest failure risks hindering the recovery of crypto-assets.
The FTX disaster claimed another victim. After months of agony, the cryptocurrency lending platform Genesis filed for Chapter 11 bankruptcy protection in the United States. This American regulation allows the company to obtain a delay in obtaining the funds requested by its creditors. All trades are now controlled by a federal court of Manhattan. Withdrawals remain completely blocked until further notice. Likewise, it is no longer possible to deposit money on the platform or take out loans.
In the face of American justice, Genesis heralds duty between 1 and 10 billion dollars to more than 100,000 creditors. The company specifies that it has to repay more than 3.5 billion dollars to its 50 largest creditors. Topping the list is the Gemini exchange founded by the Winklevoss brothers, to which Gemini owes more than $765 million.
” Judicial restructuring is the most effective way to preserve assets and achieve the best possible outcome for all parties involved. “says Derar Islim, CEO of Genesis, pointing “the recent extraordinary challenges of our sector”.
The origins of the Genesis disaster
As a reminder, the sinking of the Genesis it started last summer, on the sidelines of the demise of the UST Terra Labs. The platform had in fact lent large sums to the hedge fund Three Arrows Capital (3AC). The latter entered the liquidation procedure when the algorithmic stablecoin of Terra Labs collapsed, disappearing with the money loaned by Genesis. Note that this default has already accelerated the death of Celsius.
Genesis then laid off 20% of its employees to cut costs. Already weakened, the platform therefore it lost $175 million a few months later, during the FTX implosion. Strapped for cash, Genesis soon experienced a colossal wave of withdrawals. Like FTX before, the company froze withdrawals, holding investor holdings hostage.
Once interested in a bailout, Binance Group has opted to abandon the deal, fearing a conflict of interest. To avoid bankruptcy, the New York company parted ways with 30% of its staff early January. The measure proved to be insufficient. The Digital Currency Group (DCG) subsidiary was then forced to file for bankruptcy and get started a court-supervised restructuring process”. To complete the process, Genesis has $150 million in cash.
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Is the Bounce of Cryptocurrencies Undermined?
The bankruptcy of Genesis risks jeopardizing the rebound in cryptocurrency prices. Over the past week, the cryptocurrency market has actually recovered, led by King Bitcoin. Digital currency is back exceeding $20,000taking advantage of the rise in stock market indicators and the fall in inflation in the United States.
Genesis’ bankruptcy filing could hamper this unexpected recovery. In the wake of Genesis’ death, many ecosystem players are likely to face medium-term difficulties. This is the case of Gemini, which has collaborated with Genesis as part of the Gemini Earn savings program. This service has allowed investors to enjoy high returns on cryptocurrencies deposited on Gemini. In fact, the Genesis debacle could affect Gemini customers. It is the tenth most popular exchange in the world, according to CoinMarketCap.
Even the death of Genesis threatens to affect other entities belonging to the Digital Currency Group (DCG). The American venture capital firm also owns Grayscale, the entity behind the Grayscale Bitcoin Trust (GBTC). It is the largest cryptocurrency investment vehicle for institutions, with $10 billion worth of bitcoin under management. Other companies owned by DCG include specialist news agency CoinDesk, mining firm Foundry and exchange Luno.
A still fragile market
Since the FTX debacle, many other ecosystem players have bitten the dust. This is the case of BlockFi, a platform specialized in loans, Core Scientific, a giant of Bitcoin mining, or Auros, a trading company. At the same time, several industry giants are going through a turbulent patch and catching on drastic measures to survive the crisis. For example, essentials Coinbase, Kraken, and Crypto.com have laid off some of their employees. Cornered, Kraken and Coinbase even made the decision to withdraw from the Japanese market pending a reprieve.
Against this gloomy backdrop, observers are advising investors to remain cautious. For Ben Laidler, an analyst and strategist at eToro, “ the risks remain high » to ” this young asset class has never faced a long-lasting economic downturn”.
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