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Genesis next? Brokerage struggling to source $1bn, but denies bankruptcy plans

By Capital.com News

Edited by Charlie Mellor

11:24, 22 November 2022

The Genesis logo appears on a smartphone
The potential fallout from troubles at Genesis has been spooking many market watchers – Photo: Shutterstock

Cryptocurrency broker giant Genesis has denied imminent bankruptcy plans but has been reportedly struggling to raise a $1bn capital injection. 

Genesis’ lending unit halted withdrawals last week after the demise of Sam Bankman-Fried’s FTX eroded investor confidence, leading to a liquidity squeeze at the brokerage.

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FTX fallout

The collapse of FTX – which was the world’s second-largest cryptocurrency platform at the beginning of this month – led investors to flee the cryptocurrency market. Unable to handle the exit volume, Genesis suspended withdrawals.

Crypto platform Gemini responded by freezing withdrawals for its cryptocurrency lending program, Gemini Earn, for which Genesis was a lending partner. 

Genesis also has $175m stuck on the FTX platform, making it one of FTX’s top 10 creditors. 

Raising efforts

Before resorting to the withdrawals freeze, Genesis had been seeking a $1bn emergency loan to help with liquidity, according to sources cited by The Wall Street Journal. The embattled company has now slashed its raising target to $500m, according to The Block.

Amid the fundraising struggles, speculations about Genesis’ solvency and bankruptcy plans mount. Responding to these concerns, Genesis said it had no imminent plans to file for bankruptcy. In a media statement, it said: 

ETH/USD

3,130.32 Price
+0.420% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 6.00

BCH/USD

368.50 Price
+5.450% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 2.50

XRP/USD

0.48 Price
+6.320% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.01168

DOGE/USD

0.11 Price
+0.250% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.0012872
 “We have no plans to file bankruptcy imminently. Our goal is to resolve the current situation consensually without the need for any bankruptcy filing. Genesis continues to have constructive conversations with creditors.”

Fallout concerns

The potential fallout from the troubles at Genesis has been spooking many market watchers because Genesis is a big player in the crypto market. 

The brokerage is a cornerstone of the Digital Currency Group (DCG) conglomerate, founded by former investment banker Barry Silbert in 2015 after he sold a trading platform Second Market to Nasdaq (NDAQ). 

DCG, which is valued at $10bn, has invested in some 165 crypto companies, causing concerns about repercussions for the industry in case of troubles.

When Genesis froze withdrawals, DCG insisted that the liquidity issues concern Genesis’ lending business and not its custodian or trading business. 

Genesis acts as a custodian for, among others, major cryptocurrency trading platform Coinbase Global Inc (COIN). DCG added:

“Importantly, this temporary action has no impact on the business operations of DCG and our other wholly-owned subsidiaries.”

Markets in this article

COIN
Coinbase Global Inc (Extended Hours)
218.05 USD
2.85 +1.330%
NDAQ
Nasdaq
62.81 USD
0.32 +0.520%

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
Capital Com is an execution-only service provider. The material provided in this article is for information purposes only and should not be understood as investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents and has not been prepared in accordance with the legal requirements designed to promote investment research independence. While the information in this communication, or on which this communication is based, has been obtained from sources that Capital.com believes to be reliable and accurate, it has not undergone independent verification. No representation or warranty, whether expressed or implied, is made as to the accuracy or completeness of any information obtained from third parties. If you rely on the information on this page, then you do so entirely at your own risk.

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