American billionaire Barry Silbert has written to shareholders in his embattled Digital Currency Group, seeking to reassure them of its viability as fears rise for the potential bankruptcy of his crypto broker Genesis and as the fallout from the collapse of FTX reverberates through the industry.
Silbert’s letter comes nearly a week after Genesis halted redemptions and new loan originations following the collapse of Sam Bankman-Fried’s crypto empire. The New York-based broker cited withdrawal requests which “exceed our current liquidity” and has since been scrambling to source funding.
The Genesis loan book faces “an issue of liquidity and duration mismatch”, Silbert wrote to shareholders on Tuesday, in a letter seen by the Financial Times. “These issues have no impact on Genesis’s spot and derivatives trading or custody businesses, which continue to operate as usual,” he added.
Founded in 2013, Genesis is considered one of the pillars of the crypto industry, providing institutions with trading, lending, custody and derivatives services. Last year it traded $116bn worth of crypto, originated $131bn worth of loans and has more than 1,000 institutional trading counterparties.
The brokerage is a subsidiary of Silbert’s Digital Currency Group, which was valued at $10bn last year, and enjoys funding from blue-chip backers including SoftBank, Singapore’s sovereign wealth fund and Alphabet’s venture arm CapitalG. DCG’s portfolio companies also include digital asset investment manager Grayscale, news site CoinDesk, mining company Foundry and wallet provider Luno.
Silbert described loans between Genesis and DCG as taking place “in the ordinary course of business” and “always structured on an arm’s length basis and priced at prevailing market interest rates”.
The group owes Genesis $575mn worth of loans due in May 2023, which were used to fund DCG’s stock buybacks, as well as investments, Silbert said. It also has a $1.1bn promissory note due in 2032 which arose when DCG assumed the liabilities of Genesis related to the collapse of digital asset hedge fund Three Arrows Capital over the summer.
In addition to those debts, DCG has a $350mn credit facility “from a small group of lenders” led by Todd Boehly’s investment vehicle Eldridge, according to the letter.
Fears about the health of Genesis rose on Monday when the broker said it did not “imminently” plan to file for bankruptcy, a statement which did little to reassure crypto markets and which sent bitcoin plunging below $16,000.
Silbert, a former Houlihan Lokey investment banker, said “all possible options” were being explored.
Genesis’s talks with Binance fell apart this week, according to people familiar with the matter. Meanwhile, market maker B2C2 is in the process of negotiating buying some of Genesis’s loans, according to people familiar with the matter.
The collapse of Genesis would make it the most significant casualty of the implosion of Bankman-Fried’s FTX and Alameda Research, which has shocked the industry and led to crypto companies rushing to assuage fears of contagion.
While Genesis says the issues are only at its lending arm, the whole company is seeking funding. “They share the same risk manager, they share the same compliance officer,” said a person familiar with the matter.
Worries about the health of DCG have hit Grayscale, with its flagship bitcoin trust facing a near 50 per cent discount compared to the price of bitcoin.
