On Tuesday (22 November 2022), Barry Silbert, the founder and CEO of incubator and crypto-focused venture capital firm Digital Currency Group (DCG) talked about troubled crypto lender Genesis Global Capital.
Former investment banker Silbert is one of the earliest and most active investors in the crypto space. DCG, the company he founded in 2015, says that it is “building and supporting the largest early stage investment portfolio in the digital currency and blockchain ecosystem.” Its portfolio includes some of the biggest names in the crypto space, including Abra, BitPay, BitPesa, Blockchain, Blockstream, Brave, Chainalysis, Circle, Coinbase, Kraken, Ledger, Ripple, and Xapo.
Three of DCG’s best-known subsidiaries are crypto news outlet CoinDesk, digital currency asset manager Grayscale Investments, and full-service digital currency prime broker Genesis Global Trading (“Genesis” for short). The lending arm of Genesis Global Trading is Genesis Global Capital.
On 16 November 2022, Genesis announced that “FTX has created unprecedented market turmoil, resulting in abnormal withdrawal requests” which had exceeded the liquidity of Genesis Global Capital, forcing them to “temporarily suspend redemptions and new loan originations” in Genesis Global Capital.
Well, earlier today, according to a report by The Block, the DCG CEO sent a letter to shareholders, which said:
“Genesis Global Capital, Genesis’ lending business, temporarily suspended redemptions and new loan originations last Wednesday, November 16 after market turmoil sparked unprecedented withdrawal requests…This is an issue of liquidity and duration mismatch in the Genesis loan book. Importantly, these issues have no impact on Genesis’ spot and derivatives trading or custody businesses, which continue to operate as usual… Genesis leadership and their board decided to hire financial and legal advisors and the firm is exploring all possible options amidst the fallout from the implosion of FTX…
“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…
“We appreciate the words of encouragement and support, along with offers to invest in DCG. We will let you know if we decide to do a financing round… Despite the difficult industry conditions, I am as excited as ever about the potential for cryptocurrencies and blockchain technology over the coming decades and DCG is determined to remain at the forefront.“
According to Bloomberg, “the troubled brokerage Genesis Global has $2.8 billion in outstanding loans on its balance sheet, with about 30% of its lending made to related parties including its parent company, Barry Silbert’s Digital Currency Group, according to people familiar with the matter.”