The collapse of FTX triggered an avalanche in crypto, Genesis and DCG are the most notable names among those affected. Speculators believe Genesis will have to file for bankruptcy if there's no new funding to cover the losses. We will discuss what's the business of Genesis and DCG and breaking down the incident and their future.
1/ What is DCG?
Digital Currency Group (DCG) is a venture capital company focusing on crypto. It was launched in 2015 by Barry Silbert. DCG has made 200+ venture investments and owns seven subsidiary companies: Genesis, Grayscale, CoinDesk, Foundry, TradeBlock, and HQ.
2/ What is Genesis?
DCG started from Genesis. Genesis is an institutional digital asset financial services firm. It aims to combine market data, exchange connectivity, and liquidity to provide an all-in-one service to institutional investors.
Based on its official announcement, the trading arm of Genesis is the only business affected by recent events. Other subsidiaries are independent entities and remain fully operational.
Some say that DCG will be forced to sell $BTC held by Grayscale's GBTC to cover the losses. However, DCG does not own the bitcoins in GBTC, the customers do. And the bitcoins are held in custody by Coinbase. So DCG can't sell them directly.
3/ What Happened?
With the fall of FTX/Alameda, many began questioning Genesis. It pretended everything was all right initially, but things quickly lost control.Less than 24 hours later, Genesis provided an update, admitting that they had incurred a total loss of ~$7 million.
Genesis caved in 5 days later when it suspended redemptions and new loan originations. FTX caused abnormal withdrawal requests that exceeded their liquidity. NYT has reported that Genesis was exploring options like bankruptcy, it had around $575M debts.
4/ What's next?
Without immediate new funding, the most likely outcome is that Genesis Global Capital files for bankruptcy. It is still being determined whether other Genesis businesses and DCG can generally stay afloat.
Genesis' funding sources included borrowing via the Gemini Earn and Circle Yield programs. These are short-term sources. If those dry up, then Genesis is forced to liquidate at unattractive prices. Unfortunately, Circle has already shut down Circle Yield.
5/ The Solutions
The first is to raise equity from DCG and inject capital to cover losses and restore confidence. But with Genesis's funding sources dried up. It desperately needs to find new cheap, yet reliable funding sources. Otherwise, it cannot sustain its regular business.
The other move for Genesis is to get acquired by powerhouses from traditional finance, this will be challenging due to regulatory scrutiny. Suppose no buyers in the market are interested in DCG or Genesis. In that case, the only outcome is bankruptcy.
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Read the full article at: https://tokeninsight.com/en/research/market-analysis/will-genesis-go-bankrupt-a-review-of-the-genesis-dcg-incident
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