No one escapes FTX’s fall

Genesis Global Trading, one of the oldest and most legendary crypto institutions is in deep trouble. In November, following the collapse of the FTX cryptocurrency exchange, the company’s lending arm was forced to freeze customer withdrawals – a bad sign. Almost two months later Genesis reportedly on the verge of bankruptcy.

Although Genesis has not publicly stated that bankruptcy is imminent (Derar Islim, acting CEO, He speaks he remains “focused on finding a solution”), the firm reportedly laid off 30 percent of its workforce this week – the latest sign of its financial ill health.

Founded in 2013, Genesis is central to the day-to-day operations of the crypto industry. In 2021 alone, the company issued loans worth $131 billion and arranged deals worth $116.5 billion. To finance these loans, Genesis borrows from individuals and organizations holding large amounts of coins, also known as whales, who receive a cut of the profits in return.

While the crypto hype has gone on unchecked, Genesis has had a streak of success but its luck ran out in 2022. The lender has been in trouble since July, when hedge fund Three Arrows Capital collapsed, taking $1.2 billion with it. $2.36 billion he borrowed from the firm. In the fall, Genesis was again on the wrong side of the collapse; when FTX filed for bankruptcy on November 11, the firm lost $175 million held on the exchange.

Digital Currency Group (DCG), the parent company of Genesis, provided financial assistance in both cases. Despite help,unprecedented market turmoilCreated by the FTX situation forced Genesis to freeze withdrawals and start hunting for emergency funding. But like the FTX, the Genesis rescue package never came to fruition.

The excitement of the crypto market in 2021 has sowed fear of missing out among investors who have raised huge sums of money. But that FOMO is now long gone, giving way to suspicions in both the promises and accounting practices of large crypto companies in light of allegations of fraud on FTX.

Venture investment in crypto is drying up, according to recent article published by market data house PitchBook. After a “breakthrough year” in 2021, with $21 billion of capital pouring into the industry, the appetite for crypto investment is rapidly declining. By the third quarter of 2022, funding was down 34.3% year-on-year and deal volume fell to a two-year low.

In the case of Genesis, investors were put off by a lack of clarity about the size of the cash injection needed to close the hole, says David Bailey, the company’s CEO. Bitcoin Magazine, who also leads an activist group representing investors in Grayscale Bitcoin Trust, a subsidiary of DCG. He describes the deficit as “enormous and unknown in its magnitude”.

Brad Harrison, who leads the Venus decentralized lending protocol team, paints a similar picture. According to him, the bankruptcy of Genesis will not come as a surprise after the “tectonic” events that have shaken the crypto industry over the past year. But as for the specifics, “we’re all just guessing what happens behind closed doors.”