genesis global trade, one of crypto’s oldest and most storied institutions is in dire straits. In November, in the wake of the implosion of crypto exchange FTX, the company’s lending unit was forced to freeze customer withdrawals — never a good sign. Nearly two months later, Genesis is reportedly on the verge of bankruptcy.
While Genesis hasn’t publicly said bankruptcy is imminent (Derar Islim, interim CEO, says he remains “focused on finding a solution”), the company reportedly laid off 30 percent of its workforce this week — the latest sign of his financial health problems.
Founded in 2013, Genesis is at the center of the day-to-day operations of the crypto industry. In 2021 alone, the company issued $131 billion in loans and set up $116.5 billion in transactions. To fund these loans, Genesis borrows from individuals and institutions that own large amounts of coins, known as whales, who receive a share of the profits in return.
As the crypto hype train continued unchecked, Genesis had a hot streak, but the luck ran out in 2022. The lender has been in trouble since July, when hedge fund Three Arrows Capital collapsed, taking $1.2 billion from the $2.36 billion. it had borrowed from the firm. Genesis once again found itself on the wrong side of a fall meltdown; when FTX filed for bankruptcy on Nov. 11, the company lost $175 million stored with the exchange.
Digital Currency Group (DCG), the parent company of Genesis, plunged into bailouts on both occasions. Despite the help, theunprecedented market turmoilcreated by the FTX situation forced Genesis to freeze withdrawals and hunt for emergency funding. But like FTX, a rescue package for Genesis has not materialized.
The frothiness of the crypto market in 2021 spread the fear of missing out among investors who attracted huge sums of money. But that FOMO is now long gone, replaced by suspicion of both the promises and accounting practices of major crypto companies in the face of the fraud allegations at FTX.
Venture capital investments in crypto are drying up, according to a recent document released by market data house PitchBook. After an “escape year” in 2021, in which $21 billion in capital poured into the industry, the appetite for crypto investment is rapidly collapsing. By the third quarter of 2022, funding had fallen 34.3 percent year over year and the number of deals had fallen to a two-year low.
In the case of Genesis, investors have been put off by a lack of clarity on the size of the cash injection needed to close the gap, says David Bailey, CEO of Bitcoin magazine, who also leads an activist group that represents the interests of investors in Grayscale Bitcoin Trust, a subsidiary of DCG. He describes the deficit as “massive and unknown in magnitude”.
Brad Harrison, who leads the team behind the Venus decentralized lending protocol, paints a similar picture. A bankruptcy of Genesis would come as no surprise in the wake of the “tectonic” events that have shaken the crypto industry over the past year, he says. But as for the details, “we’re all just guessing what goes on behind closed doors.”
