Genesis’ Crypto Lending Businesses File for Bankruptcy Protection

The collapse of FTX in late 2022 was the final straw for Genesis, which earlier that year reportedly suffered losses of several hundred million dollars due to its exposure to failed crypto hedge fund Three Arrows Capital.

Genesis Global Holdco LLC, the holding company of troubled cryptocurrency lender Genesis Global Capital, filed for Chapter 11 bankruptcy protection in New York after being pummeled by two of 2022’s biggest industry collapses.

Genesis Global Holdco, LLC and its subsidiaries Genesis Asia Pacific Pte. Ltd and Genesis Global Capital, LLC filed a trio of voluntary petitions with the United States U.S. Bankruptcy Court for the Southern District of New York. All three fall under the umbrella of Digital Currency Group, which also owns CoinDesk. Genesis has moved for joint administration of the cases.

In its filing, Genesis Global Capital, the partner firm to Gemini’s defunct Earn program, estimated more than 100,000 creditors and between $1 billion and $10 billion in liabilities, as well as assets. The two other entities estimated their assets and liabilities in the $100 million and $500 million range, respectively.

Genesis owes over $3.5 billion to its top 50 creditors, among which include crypto exchange Gemini, trading giant Cumberland, Mirana, MoonAlpha Finance and VanEck’s New Finance Income Fund, according to the bankruptcy filing published late Thursday.

Those companies comprise Genesis’ crypto lending business, which was rocked last year by the implosions of hedge fund Three Arrows Capital and crypto exchange FTX. Genesis’ other subsidiaries involved in the derivatives and spot trading and custody businesses as well as Genesis Global Trading were not included in the filing and continue client trading operations, according to a press release.

In its filing, Genesis Global Capital said it expects that through the restructuring process, there will be money left over to pay unsecured creditors – a group that can get wiped out in bankruptcy cases if the situation is extremely dire.

In a statement on Friday, DCG said that neither it nor any of its employees, including those on Genesis’ board of directors, were involved in the decision for file for bankruptcy, and that DCG would continue to operate “business as usual.”

DCG also reiterated that it owes Genesis Capital roughly $526 million due in May 2023 and $1.1 billion via a promissory note due in June 2032, and that it “fully intends to address its obligations to Genesis Capital in the course of a restructuring.”

Shortly after FTX collapsed into its own bankruptcy case in November, Genesis Global Capital was forced to suspend customer withdrawals, which hurt customers of a yield product offered by the Gemini crypto exchange.

Genesis had been scrambling to raise fresh capital or reach a deal with creditors. It – along parent company DCG, which also owns CoinDesk – was under increasing pressure to make good on $900 million of locked deposits.

The bankruptcy “is a crucial step towards us being able to recover your assets,” the Gemini exchange’s CEO, Cameron Winklevoss, tweeted shortly after the filing was announced. In the same tweet string, Winklevoss threatened to sue DCG CEO Barry Silbert over the repayment of the loan. The tweet comes after Winklevoss waged a Twitter war against DCG to recover the loan amid his exchange’s own struggles.

Genesis late last year retained investment bank Moelis & Co. to assist with exploring options.

Before FTX dealt a blow to Genesis, the failure of crypto hedge fund Three Arrows Capital had caused hundreds of millions of dollars in losses for the firm, CoinDesk reported last year.

Earlier this month, Genesis announced it was laying off 30% of its staff, taking it down to 145 employees.

Thursday’s bankruptcy filing could have broader implications for bitcoin as Genesis and digital assets manager Grayscale share the same parent company in DCG. Grayscale operates the Grayscale Bitcoin Trust (GBTC), which has $10 billion-plus in assets under management and was late last year trading at a record discount to net asset value, although that discount has narrowed recently. There are market fears that the repercussions of the Genesis bankruptcy could somehow lead to the liquidation of GBTC’s holdings of 600,000+ bitcoin.

UPDATE: (Jan. 20, 2023 8:05 UTC): Updates with amount owed to top 50 creditors, and Gemini’s Winklevoss threat to sue DCG.

UPDATE: (Jan 20 16:00 UTC): Adds the filing is in the bankruptcy court in the Southern District of New York.

UPDATE: (Jan 20 17:44 UTC): Adds statement from DCG.

CORRECTION (Jan. 20 17:45): Genesis Global Holdco is the holding company of Genesis Global Capital. DCG is the parent company.