Crypto Contagion Is Spreading, Fast

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To guarantee Genesis wasn’t hamstrung by the loss, its genitor company, Digital Currency Group (DCG), bailed it out. But successful the aftermath, Genesis chopped 20 percent of its workforce to trim costs and Michael Moro, its long-time CEO, stepped down.

Genesis again recovered itself connected the incorrect broadside of a illness earlier this month; erstwhile FTX filed for bankruptcy connected November 11, the steadfast mislaid $175 cardinal stored with the exchange. Again, DCG intervened, providing a currency injection of $140 million.

But contempt aggregate DCG bailouts, Genesis has failed to flight the FTX fallout. Samson Mow, a salient crypto pundit and ex-chief strategy serviceman astatine crypto infrastructure steadfast Blockstream, says the brokerage is struggling to money a surge successful the fig of customers asking to redeem their crypto. This led to the suspension of withdrawals, which threatens to worsen the prevailing situation of assurance and summation the likelihood of a unreserved connected different lenders (say, BlockFi oregon Voyager Digital)—and truthful the contagion spreads.

But Mow says it’s important to recognize this is simply a liquidity problem, not a solvency problem. In different words, Genesis has capable assets to wage its debts, they’re conscionable not readily disposable successful currency form. For this reason, a bankruptcy “seems unlikely,” says Mow.

DCG besides sought to play down the situation connected Twitter, saying that the determination to suspend redemptions and halt issuing caller loans was a “temporary action” and that the occupation is confined exclusively to the Genesis lending division, which means the trading and custody units proceed to run arsenic normal.

Nonetheless, the concern is superior capable for Genesis to question further funding, with crypto speech Binance and backstage equity steadfast Apollo Global Management tapped arsenic imaginable investors.

The effort to unafraid backing has been unsuccessful frankincense far, reports suggest, partially owed to interest implicit the fiscal narration betwixt Genesis and different DGC-owned entities. Of the $2.8 cardinal successful outstanding loans connected the Genesis equilibrium sheet, astir 30 percent are made to either DGC oregon its subsidiaries, but inter-company loans are being treated with peculiar suspicion close present due to the fact that of their cardinal relation successful the FTX collapse.

Barry Silbert, CEO of DCG, told investors that inter-company loans of this benignant are thing retired of the ordinary. “We person weathered erstwhile crypto winters and portion this 1 whitethorn consciousness much severe, collectively we volition travel retired of it stronger.”

Yet, for each its conviction, Silbert’s rallying outcry has not halted speculation. Burned precocious by mendacious assurances from FTX laminitis Sam Bankman-Fried—who tweeted “FTX is fine” connected November 7, conscionable days earlier the steadfast collapsed—crypto investors are bracing for a bankruptcy astatine Genesis, too.

One of the consequences of a imaginable illness is already playing out. After withdrawals were halted, crypto speech Gemini, whose output farming merchandise sits connected apical of Genesis, announced its Earn customers would nary longer beryllium capable to entree their funds.

On November 22, the exchange explained it was moving to “find a solution,” but until then, $700 cardinal worthy of lawsuit funds would stay locked up. If Genesis were to spell bankrupt, immoderate of these funds whitethorn ne'er beryllium returned, conscionable similar astatine FTX—and it's imaginable that customers of different Genesis-linked exchanges mightiness endure the aforesaid fate.