While Genesis has denied plans to declare bankruptcy, the exchange’s liquidity trouble concerns the industry.
Following the FTX collapse, Genesis Global Trading’s lending division halted new loans and redemptions. As a result, the industry smelled trouble around the platform’s liquidity position.
Reports of Genesis Bankruptcy Unfounded?
According to sources cited by Bloomberg, the digital asset brokerage is having trouble finding new funding for its lending business. According to the article, the platform has been in private discussions with multiple companies, including Binance, and has been looking for at least $1 billion in new funding.
However, recent reports claim that Genesis is now looking for half that amount as part of emergency funding.
Responding to the news, Genesis stated that it is in talks with creditors, rejecting claims of immediate bankruptcy. Reuters quoted the company spokesperson stating, “We have no plans to file bankruptcy imminently. Our goal is to resolve the current situation consensually without the need for any bankruptcy filing,”
According to the company, the failure of cryptocurrency hedge fund Three Arrows drove it to take action to increase liquidity and reduce risk on its books. However, the FTX crash brought about a wave of withdrawals that put a strain on its liquidity. This is despite Genesis’ claim that it had “no material exposure” to FTT, FTX’s native digital token, or other altcoins issued by exchanges, that could worsen its liquidity position.
If reports are to be believed, Genesis has also sought funding from private equity firm Apollo Global Management. So far, there is no update on the funding assistance.
The domino impact of FTX collapse
Due to Genesis’ recent modifications, Gemini exchange has also declared that it has halted withdrawals from its interest-bearing Earn accounts. Considering, the Earn program’s lending partner is Genesis.
Gemini stated in a recent blog post, “The past week has been an incredibly challenging and stressful time for our industry. We are disappointed that the Earn program SLA will not be met, but we are encouraged by Genesis’ and its parent company Digital Currency Group’s commitment to doing everything in their power to fulfill their obligations to customers under the Earn program.”
Ram Ahluwalia, CEO and co-founder of Lumida Wealth Management, told Laura Shin in an interview that thinking Genesis is just illiquid is incorrect, hinting towards its insolvency. According to him, increased risk and less access to funding is driving down Genesis’ loan outstanding.
The Journal also quotes a Genesis document that states: “There is an ongoing run on deposits driven mainly by retail programs and partners of Genesis [Gemini Earn] and institutional clients testing liquidity.”
Consequences of the crisis
Another report by the Wall Street Journal claims that BlockFi might also be preparing for Chapter 11 bankruptcy due to major exposure to FTX. On Nov. 14, BlockFi, the famed crypto lending platform, admitted it had exposure to FTX. It even included obligations owed to Alameda Research, assets held at FTX.com, and a credit line from FTX.US. Singapore state investor Temasek has also written off a $275 million investment in FTX. And among many other investments, the Ontario Teachers’ Pension Plan has also written down its 95 million FTX Investment.
As noted by BeInCrypto earlier citing data by Crunchbase, Alameda Research was responsible for 184 investments, FTX Ventures for 48 investments, and the FTX exchange for 21 investments.
If large platforms like Genesis collapse, the crypto market might continue to snowball bankruptcies, as seen after the Terra LUNA debacle. While JPMorgan believes that the FTX collapse could speed up cryptocurrency regulations, retail investors will have months of waiting before they can claim back their investments with a haircut.
Meanwhile, BeInCrypto has reached out to Genesis to understand its next course of action to avoid a possible bankruptcy filing. A response from them is awaited.
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