The bitcoin price has plummeted under $17,000 per bitcoin, down from almost $70,000 12 months ago, while ethereum has collapsed toward $1,000 per ether with JPMorgan warning the price crash could be just getting started.
Now, fears are swirling that $10 billion bitcoin and crypto giant Digital Currency Group (DCG) could be in trouble after its crypto lender Genesis was forced to pause withdrawals and reports emerged it’s seeking an emergency $1 billion loan.
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This week, Genesis, one of the biggest crypto lenders that makes up part of DCG’s sprawling crypto empire, suspended customer redemptions in its lending business, blaming the sudden FTX meltdown. DCG, last year reportedly valued at $10 billion, also owns bitcoin and crypto miner Foundry, asset manager Grayscale, crypto exchange Luno and news outlet Coindesk.
Ahead of the withdrawal suspension, Genesis requested an emergency loan of $1 billion from investors, it was reported by the Wall Street Journal, citing a leaked fundraising document that described a “liquidity crunch due to certain illiquid assets on [Genesis’] balance sheet.”
“There has been a target on Genesis’s back for days,” Joseph Edwards, an investment partner at Securitize Capital, told Reuters, adding it’s “a signal of worse outcomes” for the crypto market due to Genesis’ close links with brokers, family offices and money managers.
FTX’s sudden collapse this month was partly triggered by reports that a significant portion of its balance sheet was made up of illiquid cryptocurrencies it had created. Just last week, FTX filed for bankruptcy protection in the U.S. and its founder Sam Bankman-Fried (SBF) resigned as chief executive.
“Genesis had been exploring all possible options amidst the liquidity crunch resulting from the FTX news,” a company spokesperson told the Journal. “After reviewing a number of options, we made the difficult decision to temporarily suspend redemptions and new loan originations in the lending business so that we can identify the best solution and outcome possible for clients.”
The Genesis situation, coming hot on the heels of the FTX implosion, has caused consternation among the crypto community, with crypto skeptics predicting it could be the next domino to fall as rumors fly over the future of crypto exchange Gemini and crypto financial services company Galaxy Digital.
“[Genesis, Grayscale, Galaxy, Gemini are] now all in huge trouble and, or collapsing,” NYU economics professor Nouriel Roubini, known as Dr Doom, posted to Twitter. “From the moon, all the lunatics are now crashing down to Earth.”
“Not looking good for Genesis, apparently,” Cory Klippsten, an outspoken critic of non-bitcoin cryptocurrencies and the chief executive of bitcoin-buying app Swan Bitcoin, posted to Twitter in reference to unconfirmed social media rumors that DCG is desperate “to sell Genesis’ loan book.”
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However, some in the bitcoin and crypto space remain unfazed by the cascade of negative reports.
“In the long run, it is unlikely that the digital asset space will be set back significantly by this,” Martin Hiesboeck, head of blockchain and crypto research at Uphold, said in emailed comments.
“The risk of contagion is now higher than ever, but it is, we believe, negligible. Don’t forget how small the space still is. This is no Enron or Lehman moment. For most firms implicated in the scandal, from Sequoia to Tiger and Circle, the sums involved are pocket change.”