Q9 Weekly | Genesis Story
25th November 2022
- Genesis seeking $1bn capital, warns investors of potential bankruptcy
- GBTC refuses to share proof-of-reserves, discount slides to 45%
- Web3 leaders join Binance to spearhead industry recovery initiative
Markets recovered somewhat following a mid-week wobble as DCG firms Genesis and Grayscale both came under pressure. Genesis has been trying to raise at least $1bn from investors and warned that it may need to file for bankruptcy if the efforts fail. Meanwhile, Grayscale, the asset manager running the world’s largest bitcoin fund, refused to share its proof-of-reserves over ‘security concerns’. GBTC is now trading at a 45% discount to NAV. DCG’s overall debts amount to over $2bn.
Various Tokens, 1 Week
Source: TradingView
Trade volumes cooled off significantly last week after one of the busiest ever during the FTX collapse. Weekly volume on Huobi and Bitfinex dropped 82% and 75%, respectively. Gemini’s volume fell by 56% after the exchange halted its Earn program and Binance’s dropped 60%.
Source: Kaiko
Open interest in BTC futures traded on the CME have now soared to 98,725 BTC, surpassing the peak of 93,628 BTC reached in October last year as institutions return to the market — although this time on the bearish side.
Source: Arcane Research
Litecoin (LTC) has emerged as a rare star amid the FTX-induced chaos, with its outperformance stemming from an impending positive change in its supply dynamics. LTC has rallied +43% to $79 this month. Market leaders BTC and ETH dropped -19% and -25% over the same period. LTC’s bullish turn comes eight months ahead of Litecoin’s third mining reward halving — a programmed code that will reduce rewards paid to miners for recording transactions on Litecoin’s blockchain from 12.5 LTC per block to 6.25 LTC per block.
Source: TradingView
Dcg Eat Dcg
Investors are now worried that liquidity problems for crypto financial-services firm Genesis could spill over to the wider market. Its parent, Digital Currency Group (DCG), is one of the largest crypto firms in the world, also owning Grayscale, CoinDesk, Luno amongst others.
Genesis has spent much of November scrambling to raise fresh capital or reach a deal with creditors thanks to its exposure to FTX. The firm has hired investment bank Moelis & Company to explore options, including a potential bankruptcy, The New York Times reported.
The firm is reportedly seeking at least $1bn from the market to shore up its lending arm. On Monday, Binance reportedly turned down a request to invest in Genesis.
The troubled brokerage allegedly has $2.8bn in outstanding loans on its balance sheet, with about 30% of its lending made to related parties including DCG.
The company’s institutional lending unit last week was forced to suspend redemptions and new originations. Genesis also previously disclosed that its derivatives unit had about $175mn in locked funds in its FTX trading account. As a result, DCG opted to strengthen Genesis’ balance sheet with an equity infusion of $140mn.
Several months ago, Genesis reportedly suffered losses of hundreds of millions of dollars due to $1.4bn of loans made to failed crypto hedge fund Three Arrows Capital.
DCG Founder, Barry Silbert wrote a note to shareholders on Thursday:
“In recent days, there has been chatter about intercompany loans between Genesis Global Capital and DCG. For those unaware, in the ordinary course of business, DCG has borrowed money from Genesis Global Capital in the same vein as hundreds of crypto investment firms. These loans were always structured on an arm’s length basis and priced at prevailing market interest rates. DCG currently has a liability to Genesis Global Capital of ~$575 million, which is due in May 2023. These loans were used to fund investment opportunities and to repurchase DCG stock from non-employee shareholders in secondary transactions previously highlighted in quarterly shareholder updates.”
Without outside funding, Genesis’s lending unit will likely see increasing withdrawals once the freeze is lifted, and might be facing bigger problems, even forced into bankruptcy.
635,235 Shades of Gray
Another DCG unit hit the headlines this week. Grayscale shook the market as it revealed it would not be publishing proof-of-reserves for its Grayscale Bitcoin Trust (GBTC).
However, following the uncertainty, its custodian partner Coinbase calmed the market and released a report detailing the assets held on behalf of GBTC — 635,235 BTC, worth about $10bn. The letter also revealed that holdings are segregated from other funds. However, no on-chain addresses were published in the document.
“Coinbase frequently performs on-chain validation,” it said. “Due to security concerns, we do not make such on-chain wallet information and confirmation information publicly available through a cryptographic proof-of-reserve, or other advanced cryptographic accounting procedure.”
Grayscale insisted that “no other entity, including DCG, Genesis, nor any other Grayscale affiliate, has any control over the digital assets underlying the Grayscale products. The laws, regulations, and documents that define Grayscale’s digital asset products prohibit the digital assets underlying the products from being lent, borrowed, or otherwise encumbered.”
GBTC Discount to NAV, 1 Year
Source: Coinglass
Update on FTX Headlines This Week
Here’s a quick snapshot of the FTX headlines this week:
- Web3 leaders join Binance to spearhead industry recovery initiative
- Who’s who in the FTX inner circle?
- Coinmetrics published an interesting thread looking at where all the Alameda money went.
- SBF wrote a four-page letter to FTX employees… but somehow didn’t once mention the actual problem: giving customer deposits to Alameda in exchange for its own self-minted FTT token collateral.
- Funds stolen from FTX are on the move.
- Apple are nearing a deal to purchase the film rights of Michael Lewis’ (author of Moneyball, The Big Short, Liar’s Poker) upcoming book rights on FTX.
- FTX owes its biggest creditors $3.1bn.
- On-chain data shows close ties between FTX and Alameda were there from the start.
- Miami-Dade County, stuck in a 19-year contract with FTX, seeks to rename its arena
- Some of the best FTX/SBF memes.
There’s Always Something to be Thankful For
Since last year’s Thanksgiving, Bitcoin and Ethereum have both declined over 75% while the market cap of all crypto fell approximately 70% over the same period. For established industries, this would be a generational slide. But for crypto, it’s par for the course — previous market cycles have seen the industry’s value decline 80–90% in a matter of months.
FTX’s collapse and the ensuing contagion has shaken the crypto market. But this is not the first time crypto has faced significant turmoil related to the collapse of an exchange. Mt. Gox’s collapse, for example, in 2014 was much worse and since then crypto has thrived. Transaction volumes stagnated for roughly a year afterwards, but after that, picked up again and was soon more than double its pre-Mt. Gox collapse levels.
Source: Chainalysis
This comparison should give the industry optimism. Mt. Gox was in relative terms a bigger part of the crypto ecosystem when it collapsed in 2014 compared to FTX now, and while the market impact was bad, it rebounded relatively quickly.
When we boil it down to fundamentals, crypto has survived worse than the fall of FTX. There’s no reason to think the industry can’t bounce back from this, stronger and more innovative than ever.
And for that I am grateful — Happy Thanksgiving.
Finally…Here are ten things for crypto people to say at Thanksgiving this year are some tips on how to mansplain your way through the dinner.
Happy Thanksgiving
In the News…
- Court sets Jan 3rd deadline for Celsius customers to file claims in bankruptcy case
- El Salvador takes first step to issue Bitcoin volcano bonds
- Cardano to launch new algorithmic stablecoin in 2023
- DBS executes intraday repo transaction on JP Morgan blockchain
- Founder of EOS developer Block.One buys 9.3% of crypto bank Silvergate
- New York State to halt new fossil fuel-based crypto mining operations
- Data centre startup Arkon Energy raises $28mn to expand renewable Bitcoin mining
- Thirdverse raises $15mn for Web3 and VR game studio
- Japan kicks off CBDC experiment
- FalconX resumes use of Silvergate’s payment network
