Cryptocurrency lender Genesis filed for Chapter 11 bankruptcy in the US, becoming the latest victim of the shakeup in the digital asset market after the collapse of cryptocurrency exchange FTX.
Genesis Global Capital, one of three Genesis entities that filed for bankruptcy protection on Thursday, froze client withdrawals on November 16, days after FTX filed its own Chapter 11 filing.
The lender said it had assets and liabilities in the range of $1 billion to $10 billion, and estimated it had more than 100,000 creditors in its filing with the US bankruptcy court for the Southern District of New York. . Genesis Global Holdco, the parent group of Genesis Global Capital, has also filed for bankruptcy, along with another lending unit, Genesis Asia Pacific.
Genesis Global Holdco said the options under consideration included a sale and that it had $150 million in cash to support the restructuring. Under a Chapter 11 proceeding, a struggling business is temporarily protected from creditors while it tries to restructure its finances.
Genesis’ derivatives and spot trading, brokerage and custody businesses were not part of the bankruptcy proceedings and would continue their client trading operations, the holding company said.
The bankruptcy filing is the latest in a cascade of crypto failures and steep job cuts triggered by the fall in digital asset prices last year.
Last year, Genesis made $130.6 billion in crypto loans and traded $116.5 billion in assets, according to its website. Its two biggest borrowers were Three Arrows Capital, a Singapore-based crypto hedge fund, and Alameda Research, a trading company closely affiliated with FTX, a source told Reuters. Three Arrows, Alameda and FTX are in bankruptcy proceedings.
Three Arrows’ debt to Genesis was taken over by its parent company, venture capital firm Digital Currency Group (DCG), which later filed a lawsuit against Three Arrows. DCG’s portfolio companies also include crypto asset manager Grayscale and news service CoinDesk.
Crypto lenders, which acted as de facto banks, grew during the pandemic. But unlike traditional banks, they are not required to maintain capital buffers. This year, a shortage of collateral forced some lenders, and their clients, to take heavy losses.
However, the price of bitcoin, the critical crypto asset, has rallied since the FTX crash and is trading above $20,000 after hovering around $17,000 after one of its rivals crashed. Bitcoin price was $20,946 on Friday morning, up almost 1%.
Carol Alexander, a finance professor at the University of Sussex, said the Genesis Chapter 11 move had been valued by crypto markets.
“The industry has already discounted the insolvency of Genesis. It will not stop the bitcoin bull run. Ordinary investors have been greatly spooked by recent events in the crypto markets. But when they see prices trend again, they will reinvest in cryptocurrencies and therefore also provide fees to cryptocurrency institutions, believing it is safe to do so.”
