How Genesis’ Fall Could Further Affect the Crypto Market

Cryptocurrency lending firm Genesis had reportedly sought $1 billion from investors before it shut down redemptions and withdrawals last week. Unfortunately, Genesis is yet to get the funds as of the time of writing. According to the Wall Street Journal, Genesis had stated in the confidential fundraising document that it needed access to the credit facility by 10 a.m. on Monday, 21st November. 

According to a Bloomberg report, the company’s failure to raise funds has led it to consider bankruptcy as a potential option. The Wall Street Journal also reported that Genesis had sought funding from Binance and Apollo Global Management. However, Binance declined to invest because of potential conflicts of interest. 

According to the latest reports, Genesis has slashed its funding target to $500m, which would suggest that the company is desperate to save itself from this liquidity crunch that it has blamed on the FTX collapse. 

How can Genesis Collapse Affect the Crypto Market?

Although Genesis has stated that it has no imminent plans to file bankruptcy, it is still possible. If that were to happen, Genesis’ collapse could have more impact on the market than FTX’s did. Why is that? 

Firstly, it is noteworthy that Bitcoin’s price fell to a two-year low of $15,480 following the news that Genesis could file for bankruptcy soon if it doesn’t receive any funding. 

For context, Genesis is a big player in the crypto market. The crypto brokerage firm is a cornerstone of the Digital Currency Group (DCG), the parent company of Grayscale Investments, Coindesk, Foundry and Luno. Grayscale Investments runs the Grayscale Bitcoin Fund (GBTC), the largest legal bitcoin fund in the world, with the company considered one of the largest owners of Bitcoin, with over 600,000 BTC. Considering Grayscale and Genesis are sister companies, the recent developments have led to panic among Grayscale investors, with many believing Grayscale could be a contagion risk. That has also led to GBTC’s fund recording an unprecedented 45% discount on the value of the Bitcoin it holds, according to Bloomberg.

This panic has also led to a massive sell-off among Bitcoin investors, causing a drop in its price. According to a report, top crypto exchanges such as Binance have processed more than $1 billion in BTC withdrawals. During FTX’s collapse, we saw a significant sell-off of coins and tokens like $SOL and $FTT, which affected the crypto market. However, in this case, we are dealing with a much greater evil as we know how Bitcoin’s price movement significantly affects the crypto market. 

How Genesis’ Sister Company Coindesk Played a Hand in its Downfall

As mentioned earlier, Coindesk and Genesis are owned by the same parent company, Digital Currency Group. Genesis has blamed its liquidity crunch on the FTX collapse. Interestingly, Coindesk directly led to the FTX fiasco as it broke the news about FTX’s balance sheet, which showed the poor financial health of FTX. While we can’t blame the company for its commendable journalism, the team probably didn’t envisage the ripple effects it would have on its sister company. That’s what we call ‘own goal’ in soccer. 

Will Genesis file for bankruptcy? 

The crypto brokerage giant has slashed its raise target to $500 million, but still, help doesn’t seem to be coming for the company. There are rumors that it has until 23rd November before things go from bad to worse. One thing is for sure; Genesis would file for bankruptcy if it doesn’t raise the money to sort out its liquidity issues. If this happens, FTX’s collapse might be the tip of the iceberg of what is to come.

If you enjoyed this article, you may also enjoy…

What Has Happened Since SBF and FTX Filed Bankruptcy?

A Look Into The Books of Alameda Research

Introduction to DeFi: DEXs & AMMs

Check out the home page of Exploring Digital Assets for additional insights, reports and news!

Leave a Reply