Cryptocurrency lender Genesis Global Holdco LLC and two of its lending subsidiaries filed for bankruptcy protection in New York late Thursday night, the latest domino to fall after crypto exchange FTX failed.
The bankruptcy marks the end of an era in which crypto asset lending fueled trading by retail and institutional investors seeking high returns. A large decline in crypto prices that began in late 2021 led to the collapse of many companies that depended on this business model. Genesis endured longer than others. Crypto lenders Celsius Network LLC and Voyager Digital Ltd. filed for bankruptcy in July.
The company, along with Genesis Global Capital LLC and Genesis Asia Pacific Pte. GmbH, two subsidiaries. Genesis’ derivatives and spot trading subsidiary, custody business and brokerage arm Genesis Global Trading are not included in the filing and will continue customer trading, it said.
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The demise of Genesis is an example of how November’s collapse of crypto exchange giant FTX gripped the industry. Genesis has loaned at least hundreds of millions of dollars to trading firm Alameda Research, an FTX affiliate, the Wall Street Journal previously reported.
In its filing, Genesis Global Capital said it had more than 100,000 creditors and assets and liabilities ranging from $1 billion to $10 billion. Genesis Global Holdco and Genesis Asia Pacific each had between $100 million and $500 million in assets and liabilities.
Genesis said it has “ongoing, productive discussions” with advisors to its creditors and its parent company, Digital Currency Group, to find a way to “conserve assets and move the business forward.”
Genesis said it hopes to find a solution to its lending business, which paused repayments and new lending on Nov. 16 after failing to meet customer withdrawal requests following FTX’s collapse.
The company said it has more than $150 million in cash on hand, providing “ample liquidity” to support business operations and support the restructuring process.
In a way, Genesis is like a bank. In normal times, it accepts customer deposits that promise a high return. It lends these deposits to hedge funds and others at an even higher interest rate. Borrowers often use the funds, usually in the form of various coins and tokens, to speculate on movements in the cryptocurrency markets.
According to Genesis’ financial statements, the company’s credit department had $2.8 billion in outstanding debt at the end of the third quarter. That was down from $11.1 billion a year earlier when cryptocurrencies were still booming.
Cracks began to show at Genesis when crypto prices plummeted last summer. Genesis had made extensive loans to crypto hedge fund Three Arrows Capital, with its loans to the fund totaling about $2.4 billion last year, according to court documents. The loans were not fully secured. Three Arrows filed for bankruptcy last summer.
The company’s problems worsened with the collapse of FTX. Some of Genesis’ loans to Alameda were secured with a cryptocurrency created by Alameda, the Journal previously reported. The value of this token, FTT, plummeted after FTX collapsed, rendering the coins nearly worthless.
The company has gone through two rounds of layoffs since August and is considering filing for bankruptcy since it stopped paying out in November.
“While we have made significant progress in refining our business plans to address liquidity issues caused by the recent extraordinary challenges in our industry, including the insolvency of Three Arrows Capital and the insolvency of FTX, a court restructuring represents the most effective way to preserve assets and achieve the best possible outcome for all Genesis stakeholders,” Derar Islam, interim CEO of Genesis, said in a statement Thursday.
Genesis also did business with crypto exchange Gemini. Under a program called Gemini Earn, Gemini clients have lent their crypto assets to Genesis in exchange for interest payments. Both Genesis and Gemini suspended customer withdrawals shortly after FTX collapsed. At the time, the Earn program had about 340,000 users and about $900 million in assets.
Barry Silbert, the chief executive of Digital Currency Group, and Gemini co-founder Cameron Winklevoss exchanged barbs on Twitter over who is responsible for repaying assets owed to Gemini users.
The Securities and Exchange Commission last week sued Genesis Global Capital and Gemini, alleging the earn program is a security that violates investor protection laws.
“This is a critical step in recovering your wealth,” Mr. Winklevoss said in a tweet shortly after Genesis filed for bankruptcy.
Write to Vicky Ge Huang at [email protected] and to Caitlin Ostroff at [email protected]
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