The crypto lending unit of Digital Currency Group (DCG), Genesis Global Capital, is reportedly laying the groundwork for a bankruptcy filing as soon as this week. The company has been in confidential negotiations with various creditor groups amid a liquidity crunch.
Warnings have already been issued that it may need to file for bankruptcy if the exchange fails to raise needed cash. Representatives from Genesis Global Capital and DCG have not commented on the reports.
A Domino Effect
The financial pressure at DCG began to surface after the collapse of the hedge fund Three Arrows Capital. Genesis suspended withdrawals in November, soon after crypto exchange FTX – where Genesis held some of its funds – filed for bankruptcy.
The failures have had ripple effects on the crypto exchange Gemini Trust, run by Cameron and Tyler Winklevoss. Gemini Earn, a service that let Gemini’s users get yield for lending out their coins through Genesis, stopped redemptions as well.
Creditors, Genesis, and DCG have exchanged several proposals but so far failed to come to an agreement. Kirkland & Ellis and Proskauer Rose have been advising groups of creditors.
The company is working towards a restructuring plan and had swapped proposals with its creditors. Some of them have suggested receiving a mix of cash and equity from DCG, according to people familiar with the talks.
Further Losses to Investors
DCG has told shareholders that it is suspending quarterly dividends in an effort to conserve cash. This information is sourced from a Jan. 17 letter to sent to shareholders seen by the news outlet Bloomberg.
DCG property CoinDesk confirmed in a statement that it engaged the investment bank Lazard as a financial adviser to explore options, including a partial or full sale.
The reports of a potential bankruptcy filing by Genesis Global Capital highlight the ongoing struggles faced by the crypto lending industry. This area has been hit hard by the recent market downturn and the collapse of FTX. The situation also raises questions about the long-term viability of crypto lending and whether it is a sustainable business model.
It is important to note that this is a developing story, and plans could change as the talks are ongoing. However, it serves as a reminder of the volatility and risks associated with the crypto industry.
It also provides a rallying call for those who support regulation and oversight to protect investors and prevent similar situations in the future.
