Cryptocurrency Lender Genesis Files for Chapter 11 Bankruptcy, Industry Braces for Impact

In the Brief:

  • Cryptocurrency lender Genesis has filed for Chapter 11 bankruptcy in the Southern District of New York
  • The filing shows estimated liabilities of $1 billion to $10 billion and assets in the same range
  • The company had been considering bankruptcy as a means to stem its liquidity crisis
  • The move is expected to have far-reaching implications for the industry and for the company's clients and Gemini Earn users
  • The parent company Digital Currency Group may also be impacted by the filing

3 - 5 minute read

Genesis, a cryptocurrency lender, has filed for Chapter 11 bankruptcy in the Southern District of New York. According to the Jan. 19 filing, the firm has estimated liabilities of $1 billion to $10 billion and assets in the same range. This move comes after reports emerged that the company had been considering filing for bankruptcy protection if it was unable to raise capital to stem its liquidity crisis.

In a Jan. 19 press release, Genesis stated that it had been engaged in discussions with its advisors, creditors, and corporate parent Digital Currency Group (DCG) to evaluate the most effective path to preserve assets and move the business forward. As a result, Genesis has now commenced a court-supervised restructuring process to further advance these discussions.

The company’s Chapter 11 plan sees it contemplating a “dual track process” pursuing a “sale, capital raise, and/or an equitization transaction” that would apparently enable the business “to emerge under new ownership.” The derivatives, spot trading, broker-dealer, and custody businesses of Genesis are not part of the Chapter 11 proceedings and will continue operations according to the firm.

Genesis claims to have more than $150 million in cash on hand that it believes “will provide ample liquidity” to support its ongoing business operations and facilitate the restructuring process. The restructuring process will be led by an “independent special committee” of the company’s board of directors, and Genesis says the process is aimed at providing “an optimal outcome” for Genesis clients and Gemini Earn users.

The firm suspended withdrawals from its platform in November 2022 amid market turbulence caused by the collapse of FTX. The move impacted users of Gemini Earn, a yield-bearing product for users of the Gemini cryptocurrency exchange managed by Genesis.

Gemini co-founder Cameron Winklevoss has tweeted that the bankruptcy is a “crucial step” toward Gemini users being able to recover their assets but claimed DCG and its CEO Barry Silbert “continue to refuse to offer creditors a fair deal” and threatened to file a lawsuit “unless Barry and DCG come to their senses.”

Both Genesis and Gemini are facing charges from the United States Securities and Exchange Commission (SEC) for allegedly offering unregistered securities through the Earn program.

Fears are mounting over Genesis’ parent company DCG as it may have to sell part of its $500 million venture capital portfolio to try to offset Genesis’ liabilities. On Jan. 17, DCG halted dividend payments in a move aimed at “reducing operating expenses and preserving liquidity.” The sale of its crypto media outlet CoinDesk is also reportedly being weighed which could net DCG $200 million.

The bankruptcy filing by Genesis is a significant development in the cryptocurrency industry and one that is likely to have far-reaching implications. The company’s restructuring process is being closely watched by industry experts, and it remains to be seen how it will impact the company’s clients and Gemini Earn users. Furthermore, the potential impact on the parent company Digital Currency Group is also a cause for concern.

Disclaimer: The content in this article is provided for informational purposes only and should not be considered as financial or trading advice. We are not financial advisors, and trading carries high risk. Always consult a professional financial advisor before making any investment decisions.

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