Jan 19 (Reuters) – The lending unit of cryptocurrency firm Genesis has filed for U.S. bankruptcy protection from creditors, upended by a market rout along with companies including the FTX exchange and lender BlockFi.
Genesis Global Capital, a major cryptocurrency lender, froze customer redemptions on Nov. 16 after FTX stunned the financial world with its bankruptcy, fueling concerns that other companies could implode. The company is owned by venture capital firm Digital Currency Group (DCG).
Genesis’s loan unit said it has both assets and liabilities of between $1 billion and $10 billion in its filings in US Bankruptcy Court for the Southern District of New York.
Genesis Global Holdco, the parent group of Genesis Global Capital, has also filed for bankruptcy protection, along with another Genesis Asia Pacific lending unit.
Genesis Global Holdco said in a statement that it would contemplate a potential sale or equity transaction to pay off creditors and that it had $150 million in cash to support the restructuring.
It added that Genesis’ derivatives and spot trading, broker dealer and custody businesses were not part of the bankruptcy process and are continuing their trading operations with clients.
Genesis’ bankruptcy filing is the latest in a cascade of crypto bankruptcies and steep job cuts triggered by the price crash last year.
Genesis was already involved in a dispute with Gemini Trust Co, founded by the same cryptocurrency pioneer twins Cameron and Tyler Winklevoss, former US Olympic rowers. The two companies are fighting over a cryptocurrency lending product called Earn that they jointly offered.
The Winklevoss twins said Genesis owed more than $900 million to approximately 340,000 Earn investors. On January 10, Cameron Winklevoss called for Barry Silbert to be removed as Chief Executive Officer of Digital Currency Group.
Genesis and Gemini were charged by the US Securities and Exchange Commission on January 12 for illegally selling securities to investors through the Earn program. Tyler Winklevoss called the complaint disappointing.
Genesis brokered digital assets for financial institutions such as hedge funds and asset managers and had nearly $3 billion in total loan assets at the end of the third quarter, down from $11.1 billion a year earlier, according to its site. web.
Last year, Genesis extended $130.6 billion in crypto loans and traded $116.5 billion in assets, according to its website.
Its two biggest borrowers were Three Arrows Capital, a Singapore-based cryptocurrency hedge fund, and Alameda Research, a trading firm closely affiliated with FTX, a source told Reuters. Both are in bankruptcy proceedings.
Three Arrows’ debt to Genesis was assumed by its parent company Digital Currency Group (DCG), which then filed a claim against Three Arrows. DCG’s portfolio companies also include crypto asset manager Grayscale and news service CoinDesk.
Cryptocurrency lenders, which served as de facto banks, have exploded during the pandemic. But unlike traditional banks, they are not required to hold capital cushions. Earlier this year, a shortage of collateral forced some lenders – and their customers – to incur large losses.
Tom Hals reporting in Wilmington, Delaware and Akanksha Khushi; Editing by Lananh Nguyen, Clarence Fernandez and Kim Coghill
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