Genesis just halted withdrawals. Could it be the next crypto catastrophe?
The contagion from last week’s collapse of cryptocurrency giant FTX continues to show: On Wednesday, Genesis Global Trading, one of the largest institutional brokerages in the cryptosphere, said it was halting customer redemptions for its lending arm, Genesis Global Capital, after facing “abnormal withdrawal requests” amid “unprecedented market turmoil.”
The withdrawal requests exceeded the current liquidity at Genesis Global Capital, its interim chief executive Derar Islim said on a call with customers. According to its website, it had a total of $2.8 billion loaned out at the end of this year’s third quarter.
According to Islim, the lending arm is financially independent from its larger body, Genesis Global Trading, whose trading and custody services he claimed were still fully operational. Last week, Genesis shared that its derivatives trading business had $175 million of locked funds in FTX when it crashed—a comparatively small amount, amid the billions that have vanished as the crypto markets flamed in the past half-year.
But Genesis’s lending arm was not as unscathed: Earlier this year, it had loaned $2.4 billion to crypto hedge fund Three Arrows Capital before that fund went bankrupt, and has now been left as the largest bag-holder for the failed fund.
While Genesis’s prognosis is still unclear, its symptoms of contagion are ominous. Its struggle now brings another massive crypto pillar, with a web of influence across the space, into the crosshairs. Given its central position within the industry, Genesis’s financial health has been a critical indicator of the industry’s durability. Genesis’s parent company, Digital Currency Group, has four other subsidiaries, including Grayscale Investments, one of the world’s largest digital asset managers; Coindesk, a crypto news outlet; and Foundry, a bitcoin mining enterprise.
According to Islim, Genesis has hired advisors to explore all possible remedies for its lending arm, including raising new liquidity.
Genesis’s move was also noted by Gemini, a cryptocurrency exchange owned by the Winklevoss twins and one of Genesis’s biggest clients, which partners with Genesis for its “Earn” product that allows customers to put their money in Genesis in order to generate yields. Customers using the Earn product are also unable to withdraw their deposits. Gemini said it is working with Genesis on the issue.
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