DCG’s “carefully crafted campaign of lies”?

FTX’s monumental collapse not only destroyed a cryptocurrency exchange and wiped out billions in customer deposits, it also exposed accounting irregularities in Barry Silbert’s empire, the Digital Currency Group or DCG. That’s according to Bitcoin (BTC) billionaire and Gemini co-founder, Cameron Winklevoss. The FTX explosion caused Genesis Global Trading, another DCG company, to suspend new loan originations and repayments, a decision that directly affected Winklevoss’ Gemini Earn program. The withdrawal pause has been in place for nearly two months, prompting Winklevoss to write two open letters addressed to Silbert and the DCG board. The second open letter, released this week, stated that Silbert was “not fit” to lead DCG and that there was no way forward with him at the helm.

Following last week’s Crypto Biz newsletter, this week’s agenda refocuses on the dispute between Winklevoss and Silbert. We also analyze the latest Coinbase layoffs and the status of the Voyager sale to Binance.US.

Cameron Winklevoss: “There is no way forward as long as Barry Silbert remains CEO of DCG”

In a four-page letter to DCG’s board, Winklevoss said Silbert, DCG and Genesis orchestrated “a carefully crafted campaign of lies” to cover up a $1.2 billion hole in Genesis’ balance sheet following the collapse of Three Arrows Capital (3AC). Once 3AC went belly up, Silbert had two options: restructure the Genesis loan book or fill the hole. According to Winklevoss, Silbert did neither and pretended to inject fresh funds into the loan company. Winklevoss also said that there were “recursive exchanges” between 3AC and Grayscale Bitcoin Trust (GBTC), which actually amounted to “exchange transactions” of Bitcoin for GBTC by Genesis. “These false statements […] they were a sleight of hand designed to make it appear that Genesis was creditworthy and able to meet its obligations to lenders without DCG committing to provide the necessary financial backing to make that true,” said Winklevoss.

Digital Currency Group Under Investigation by US Authorities: Report

Digital Currency Group’s legal troubles appear to escalate as federal prosecutors in New York begin looking into its internal dealings. According to Bloomberg, authorities are investigating internal transfers between DCG and its subsidiary Genesis Global Capital and have requested interviews and documents from the companies. According to a person familiar with the matter, the US Securities and Exchange Commission is also part of the investigation. Losses in Genesis have started to mount following the collapse of hedge fund Three Arrows Capital. Since then, speculation about DCG’s insolvency has been rampant.

Coinbase to cut another 20% of its workforce in second wave of layoffs

Are you looking for a career in cryptocurrencies? Now is probably not the best time as bear market casualties continue to grow. This week, cryptocurrency exchange Coinbase announced it will cut its workforce by another 20% to contain operating costs. Coinbase laid off around 18% of its staff in June before the collapse of FTX dealt an unexpected blow to the industry, prompting another round of mass layoffs. CEO Brian Armstrong gave the usual assurance that Coinbase would emerge stronger in the future. In fact, it could be years before traditional investors look at digital assets again.

Voyager and Binance. The deal with the United States gave an initial nod during the national security inquiry

Binance.US’ proposed takeover of Voyager Digital is nearing completion after a New York bankruptcy judge allowed the bankrupt crypto lender to enter into an asset purchase agreement and seek lender approval to the sale. At the same time, Voyager answered questions from the Committee on Foreign Investment in the United States (CFIUS), which presumably has some concerns about the transaction. The CFIUS is an inter-agency body charged with reviewing foreign acquisitions of U.S. companies for national security reasons. The sale of Voyager to Binance.US was initially agreed in December 2022 for $1.022 billion.

Before You Go: Is the bear market winding down?

Bitcoin and the broader cryptocurrency market enjoyed a rare rally earlier this week, raising cautious optimism that the worst of the recession is over. Has the cryptocurrency market bottomed out or can we expect further suffering in the near future? In this week’s Market Report, I sat down with fellow analysts Marcel Pechman and Joe Hall to discuss whether there is room for optimism following the latest rally (if you can call it that). You can watch the full replay below.

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