Bankruptcy rumours continue to circle Genesis Global Trading Inc, the high-profile crypto lender owned by venture fund Digital Currency Group, leading to fears of another bout of crypto contagion.
Genesis first warned investors of a possible collapse in November 2022, when the firm sought US$1bn in funding to keep the ship afloat.
Genesis appears to have been unable to secure funding, leaving the group in a precarious financial position.
Cracks began to appear late last year, when Winklevoss Twins-owned crypto exchange Gemini demanded US$900mln in liabilities from Genesis.
Gemini had partnered with Genesis for the former’s Earn programme, which gave retail investors the opportunity to earn yield by lending their digital assets to borrowers.
But Genesis got hit hard by the FTX exchange collapse in November 2022, leaving the platform without sufficient liquidity to honour Gemini customers’ redemption requests.
Read more: Winklevoss Twins demand US$900mln from crypto broker Genesis
Gemini’s demands constitute less than a third of what Genesis owes to creditors.
According to a Financial Times report citing sources close to the matter, total liabilities exceed US$3bn. One group of creditors is being represented by multinational heavyweight law firm Proskauer Rose.
Parent company Digital Currency Group’s chief executive Barry Silbert announced a suspension of dividend payments to shareholders on Tuesday, leading to worries over the venture fund’s broader financial health.
"In response to the current market environment, DCG has been focused on strengthening our balance sheet by reducing operating expenses and preserving liquidity. As such, we have made the decision to suspend DCG's quarterly dividend distribution until further notice," DCG told shareholders.
DCG has over US$13bn tied up in its Grayscale Bitcoin Trust (GBTC), while its investment portfolio comprises nearly 300 companies.
For the moment, the cryptocurrency markets have responded ambivalently to the news. Benchmark crypto asset bitcoin (BTC) dipped around 2% on Wednesday, though it remains 24% higher year to date.
But given Genesis’ and DCG’s influence in the sector, a bankruptcy confirmation has the potential to push prices lower.