Genesis’ Crypto Lending Unit Files for Bankruptcy

Table of Contents

• Genesis Owes Creditors Over $3.5 Billion
• What Contributed to Genesis’ Troubles?

Genesis Global Holdco and two of its lending subsidiaries Genesis Global Capital and Genesis Asia Pacific, on Thursday announced that it filed for Chapter 11 bankruptcy protection.

As expected, the lending unit of the crypto firm Genesis on Thursday announced that it filed for Chapter 11 bankruptcy protection from its creditors. Genesis Global Holdco, Genesis Global Capital, and Genesis Asia Pacific, all of which are subsidiaries of Digital Currency Group (DCG), all filed voluntary petitions with the U.S. Bankruptcy Court for the Southern District of New York. Genesis’s other subsidiaries involved in derivatives and spot trading and custody businesses as well as Genesis Global Trading are not included in the filing and continue operating as normal.

In its court filing, Genesis’s lending unit, Genesis Global Capital, said that it had assets and liabilities in the range of $1 billion to $10 billion, and estimates itself to have over 100,000 creditors. The other two Genesis entities estimate their assets and liabilities to be between $100 million and $500 million, respectively. According to Reuters, Genesis Global Holdco said in a statement that it would consider a potential sale or equitization transaction to pay its creditors and that it currently has $150 million in cash to support the restructuring.

Genesis Owes Creditors Over $3.5 Billion

Genesis reportedly owes over $3.5 billion to its top 50 creditors which include crypto exchange Gemini, with whom it is currently embroiled in a battle over a “Gemini Earn” – a program which the two companies operated together. The founders of Gemini, Cameron, and Tyler Winklevoss, allege that Genesis owes over $900 million to about 340,000 of its “Earn” investors. The accusations come after Genesis was forced to halt withdrawals after the collapse of FTX.  

The United States Securities and Exchange Commission (SEC) is also adding to Genesis’s woes after it charged Gemini and Genesis with illegally selling unregistered securities to customers through their joint venture. The SEC alleges that Gemini Earn, which is supported by Genesis’s lending activities met its definition of a security.

While Gemini also finds itself in a rather precarious position, it may well survive enforcement action taken against it. As we have now learned, and many have feared for some time, Genesis has filed for bankruptcy. Moreover, Genesis is a subsidiary of DCG, which is reportedly under investigation by the U.S. Department of Justice and the SEC. The investigation into DCG was prompted by internal transfers between DCG and Genesis Global Capital.

What Contributed to Genesis’ Troubles?

Genesis Chapter 11 bankruptcy filing comes as no surprise as the company, like many others, has faced unprecedented market downturns and liquidity issues across the crypto sector. Ultimately, Genesis’ troubles, like many other crypto firms that have declared bankruptcy or have become insolvent stem from the collapse of major players in the industry that started in mid-2022. In June last year, Genesis Trading faced major losses after the crypto hedge fund Three Arrows Capital imploded and filed a claim for $1.2 billion, which DCG assumed for Genesis. Genesis was also adversely affected by the fall of Sam Bankman-Fried’s FTX crypto empire. According to Genesis’ disclosure, it has $175 million locked up in an FTX trading account which it has been unable to access. Due to its liquidity issues, Genesis’ lending unit was forced to halt withdrawals in November.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.