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Digital Currency Group Downfall: What Went Wrong With the VC Giant

11 mins
Fact Checked
by May Woods
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In the turbulent world of crypto, where fortunes are made and lost with the click of a button, the collapse of Digital Currency Group (DCG) — specifically its subsidiary Genesis — unfolded like a modern-day financial thriller. It was a saga marked by ambition, innovation, and, ultimately, a spectacular downfall.

As the intricate web of investments, strategies, and market dynamics that once hoisted DCG to the pinnacle of the crypto world began to unravel, the industry watched in disbelief. This guide digs into what went wrong with the venture capitalist giant.

What is DCG?

Digital Currency Group is a venture capital firm primarily focusing on web3 and digital asset management. It is headquartered in Stamford, Connecticut.

Before the collapse of Genesis, DCG was regarded as one of the crown jewels of the crypto industry. Its prominence was partly due to its early adoption in the crypto market and its extensive portfolio, which included more than 200 companies.

Its extensive portfolio includes various sectors such as banking, layer-1 and layer-2 blockchains, data, analytics, decentralized finance (DeFi), corporate blockchain solutions, exchanges, and tools for identity, compliance, and security. Additionally, DCG has interests in the metaverse, NFTs and gaming, payments, privacy solutions, stablecoins, trading tools and platforms, wallets and custody services, and web3 infrastructure.

History of Digital Currency Group

History of Digital Currency Group

The story of DCG begins with Barry Silbert. Silbert previously led a company called SecondMarket, which he started in 2004. It initially dealt with creating liquidity for illiquid stocks under the name Restricted Stock Partners.

He pivoted into blockchain and crypto by creating the Bitcoin Investment Trust in 2013 under the management of his other company, Grayscale.

Silbert would eventually establish DCG in 2015. He sold SecondMarket to NASDAQ, which then rebranded the company as NASDAQ Private Market. This sale occurred before he started Digital Currency Group. The funds from this sale helped to establish DCG and other firms.

After its formation, he integrated other ventures like Grayscale and the Bitcoin Investment Trust under the DCG umbrella. Thereafter, DCG became a major conglomerate that encompassed five specialized firms:

  • Foundry
  • Genesis (now bankrupt)
  • Grayscale
  • Luno
  • CoinDesk (eventually sold to Bullish Group)

In November 2021, DCG moved its headquarters from Manhattan to Stamford, Connecticut. This move was incentivized by Connecticut’s then-Governor Ned Lamont. He offered financial benefits including a $5 million grant, contingent on the company creating a minimum of 300 full-time jobs within the state.

Business structure of DCG and subsidiaries

To understand how this story unfolds, it is important first to establish Digital Currency Group’s business structure, particularly Genesis and its holdings. DCG is at the top, overseeing various entities, including Genesis Global Holdings, LLC, and Genesis Global Trading, Inc.

The chart below shows connections between DCG and its subsidiaries, including those operating internationally, like Genesis Asia Pacific Pte. Ltd. in Singapore.

digital currency group downfall genesis
DCG and Genesis business structure:

Genesis Global Capital, LLC was a financial services firm that specialized in cryptocurrency. It particularly focused on lending for institutional investors and high-net-worth individuals in cryptocurrency.

On the other hand, Genesis Global Trading was initially part of Barry Silbert’s SecondMarket as a Bitcoin trading division. When Silbert founded DCG in 2015, Genesis Trading relaunched as its own entity under the DCG umbrella.

When people refer to Genesis, they typically refer to all the aforementioned entities that went bankrupt. This is a very important piece to the puzzle of the downfall of Digital Currency Group. Many of the events that would eventually unfold revolve around these entities.

The downfall of Digital Currency Group

In 2022, the cryptocurrency market experienced a significant downturn, or “crypto winter,” which affected many companies. This bear market led to reduced asset values, leading to liquidity issues and financial distress for many firms in the crypto space.

The collapse of Terra Luna and contagion

The downfall of Digital Currency Group and Genesis began back in 2022 when a multitude of events that would eventually coalesce led to a cascading effect of implosions in the crypto market.

In May 2022, the collapse of Terra UST (UST) and LUNA caused a massive market disruption. The crypto sector incurred significant losses as a result of this incident.

As the market plummeted, many businesses that held cryptocurrency on their balance sheets moved into risky loan-to-value (LTV) ratios. Therefore, when crypto-based businesses were confronted with bank runs and margin calls, they could not meet the immediate demands.

In June 2022, the financial instability in the crypto sector further escalated as Three Arrows Capital (3AC) faced significant issues. 3AC was a significant cryptocurrency hedge fund known for its aggressive investment strategies in the crypto space.

It failed to meet margin calls and repay loans, notably a substantial loan from Voyager Digital. The situation worsened, leading to a default notice from Voyager for unpaid loans.

Subsequently, 3AC underwent forced liquidation by a British Virgin Islands court. In a bid to manage its U.S. assets against creditors, 3AC filed for Chapter 15 bankruptcy on July 1, 2022.

Crypto contagion explained

In addition to Voyager, Celsius was another company affected by the 3AC crash. It already faced its own pre-existing liquidity issues and became even more distressed thereafter, as investor confidence declined and withdrawal requests rose.

3AC owed Celsius about $75 million, which it could not repay during a period of abundant “bank runs.” Celsius officially filed for Chapter 11 bankruptcy protection on July 13, 2022, revealing a $1.2 billion shortfall in its balance sheet.

In a leaked investor call from Morgan Creek Digital, it was suggested that BlockFi liquidated 3AC for $1 billion. However, it is important to note that both BlockFi and 3AC made loans to each other.

To put it simply, 3AC owed a lot of businesses a lot of money. The collapse of 3AC sent many crypto businesses into distress, as the company managed about $10 billion worth of assets at its height. 3AC creditors included BlockFi, Celsius, Voyager, FTX, and Genesis — all of which have since declared bankruptcy.

DCG assumes Genesis’s losses

Genesis Trading, Genesis Asia Pacific, and Genesis Global Capital made significant loans to 3AC. Michael Moro, Genesis Trading’s CEO, revealed on Twitter (now X) on July 6, 2022, that the company had also suffered significant losses due to loans to Three Arrows.

In order to guarantee sufficient operating capital, its parent company, DCG, had taken on certain of Genesis’s obligations to Three Arrows.

Many divisions under the Genesis umbrella had significant financial exposure to the collapse of Three Arrows Capital (3AC). Genesis Global Capital initially loaned the now-defunct company $2.36 billion, of which nearly half was repaid. However, 3AC still had an outstanding debt of approximately $1.2 billion.

To stabilize Genesis, DCG took on this financial burden. However, instead of settling the debt with cash or equivalent, DCG issued a ten-year promissory note, valued at $1.1 billion, with an interest rate of 1% to Genesis. Despite the turmoil, however, Genesis and DCG remained operational. This would soon change in a matter of months with the collapse of FTX.

On a side not, DCG also had a separate obligation of $350 million to a group of investors through a secured lending facility.

The collapse of FTX

On Nov. 2, 2022, CoinDesk reported that FTX, a popular CEX founded by Sam Bankman-Fried, and Alameda Research, FTX’s sister trading firm company, were both heavily overreliant on FTX’s FTT token, and healed unusually close ties.

This disclosure led to a loss of confidence, triggering massive withdrawals from FTX. This led to its liquidity crisis and eventual bankruptcy on Nov. 11, 2022. While many anticipated that the potential collapse of FTX would cause a similar contagion to Celsius and 3AC, Genesis Trading insisted that it had no material exposure in a tweet on Nov. 9, 2022.

The following day, Genesis Trading revealed that it had $175 million in assets stuck in its account on FTX. As a result, Genesis would acquire a $140 million loan from its parent company, DCG, to shore up its balance sheet.

Genesis Global Capital loaned funds to Alameda Research, using FTT tokens as collateral, which would eventually plummet in price. Additionally, it was later revealed that Genesis Global Capital was the largest unsecured creditor of FTX, with $226 million owed to them, as reported in court documents.

Genesis and Gemini Earn

Gemini earned yield for its users via Gemini Earn, which lent assets to Genesis. On Nov. 16, 2022, Genesis Global Capital halted withdrawals. As Gemini was a major contributor to Genesis, Gemini was forced to suspend the Earn program.

Just a week later, in a leaked letter to shareholders, Barry Silbert revealed that DCG had also taken out loans with Genesis to the tune of $575 million. The loans were used for stock buybacks, which is a common practice for propping up the price of a company’s own equity (stock). As a result, DCG did not have the funds to pay back Genesis.

digital currency group downfall shareholder letter
Barry Silbert’s leaked letter to shareholders: Dirty Bubble Media

Genesis files for bankruptcy

On Jan. 12, 2023, the SEC charged Genesis Global Capital, LLC and Gemini Trust Company, LLC, for the unregistered offer and sale of securities to retail investors through Gemini Earn. This added to an already distressed Genesis, which could not afford to repay its creditors and had taken out many loans to meet operational demands.

Having spent months “robbing Peter to pay Paul,” the company was at its end. On Jan. 19, 2023, Genesis Global Capital and two of DCG’s other subsidiaries, Genesis Global Holdco LLC and Genesis Asia Pacific, filed for Chapter 11 bankruptcy protection.

Just days prior, DCG also suspended dividend payments, signifying stress in the parent company. Just a few weeks later, DCG also disclosed losses of more than $1 billion in 2022, owing primarily to the contagion from the failure of crypto hedge fund Three Arrows Capital (3AC).

However, on the back of its subsidiaries throwing in the towel, the pain for DCG was not over yet. 2023 would prove to be the most tumultuous year yet for the parent company.

Lawsuits galore

Because many bankruptcies were underway, many companies naturally sought to recover as many funds as possible. As a result of the complex web of loans and business relationships, this resulted in an extremely messy and prolonged fight. On July 7, 2023, Gemini sued DCG with the aim of clawing back the funds acquired from its customers via Genesis.

On Sept. 6, 2023, Global Genesis Holdco. sued DCG, its parent company. The suit was for $620 million and was an attempt to recover funds from a previous loan of $500 million. This was possibly a part of the $575 million worth of loans mentioned in Barry Silbert’s leaked shareholder letter.

Adding insult to injury, on Oct 19, 2023, Attorney General Letitia James sued Gemini, Genesis, and DCG for defrauding investors through the Gemini Earn Program. However, two of the companies would receive some resolve by settling their own dispute. On Nov. 29, 2023, Genesis Global settled its suit with DCG to claw back funds. Not too long after, Genesis Global Capital sued Gemini for preferential transfers from Genesis at the expense of other customers.

However, Gemini turned around and sued Genesis in late November 2022. Gemini sued Genesis over 60 million Grayscale Bitcoin (GBTC) shares pledged as collateral worth more than $1 billion. This suit was eventually settled on Feb. 1, 2024, with Gemini winning nearly half of the shares.

Finally, Genesis Global Trading eventually unwound its business operations on Sept. 18, 2023, marking the end of a long era for Genesis’s trading wing.

DCG downfall: What happened in the end?

digital currency group downfall timeline
DCG collapse chain of events: BeInCrypto

So, what does all of this mean when it comes to Digital Currency Group’s downfall? To put it bluntly, the collapse of Terra Luna sent a shockwave of bankruptcies in the crypto sector.

Many companies fell during the financial contagion, becoming victims of their own interconnection. Nowhere was this more evident than with 3AC during the first wave of bankruptcies. Numerous companies loaned money and assets to 3AC, including Genesis. When 3AC could not pay back its creditors, pressure piled on companies like Genesis, which was having trouble paying its own creditors.

Genesis and its subsidiaries made many loans to failed crypto companies. The company even made loans to its parent company. However, the company remained operational. This was until the CoinDesk reporting led directly to the FTX bankruptcy. Genesis’s exposure to FTX also eventually led to its own bankruptcy.

Ironically, CoinDesk, another of DCG’s subsidiaries, was the straw that broke the camel’s back, not only to its own competitor but to itself. Not only did DCG entangle itself by assuming Genesis’s risks, but it was also part of the reason Genesis could not repay its creditors. Despite this, the firm’s message in 2024 is one of the hurdles having been overcome, with Barry Silbert sharing on X in 2024 that DCG has completed a full paydown of the cash borrowed from Genesis.

A series of unfortunate events

The Digital Currency Group’s downfall was a series of unfortunate events. Yet, while the battle was hard fought, DCG is still operational. In fact, the company reported that revenue was up year over year in February 2024. This could be a sign of a recovery for the VC giant. On the other hand, with news of Grayscale GBTC net outflows into Bitcoin ETFs, DCG is not totally out of the water — it operates in a volatile and fast-changing market, after all. With Greyscale being one of DCG’s most profitable businesses, the parent company should ultimately remain cautious in 2024.

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Ryan Glenn
Ryan Glenn is a journalist, writer, and author. Ryan is motivated to educate as many people as possible on the benefits of web3 and cryptocurrency. He has authored “The Best Book for Learning Cryptocurrency,” and runs an educational platform,, dedicated to demystifying the crypto space. Ryan built the platform to transition tech-savvy and non-tech individuals into crypto and give everyone a baseline understanding of the different fields in the cryptosphere. Ryan is also an...