Another CeFi Goes Bust & The Twitter War of 2023
Another CeFi Goes Bust & The Twitter War of 2023
Genesis files Chapter 11 Bankruptcy, Winklevoss Twins versus Silbert, FTX, and GBTC's Discount
GM
Lets sing on repeat - “Another CeFi Bites The Dust”
Here’s what we’ll cover today:
Who is DCG, Genesis, and Grayscale
Why GBTC is at a High Discount
SBF Contagion
Winklevoss Twins vs. Barry Silbert
Genesis Chapter 11
Why Are Market’s Up Unlike FTX, Celcius, 3AC, and Others
To read the full article visit: Understanding the DCG, Genesis, and Grayscale Saga
Who Is DCG, Genesis, and Grayscale
DCG (Digital Currency Group): US cryptocurrency venture capital and holding company founded in 2015 by Barry Silbert. They’re one of the largest investors in the cryptocurrency space with investments in Coinbase, Circle, Silvergate, Ripple, Lightning Network, and many more. Also has Grayscale, Genesis, and CoinDesk as wholly-owned subsidiaries. At peak AUM of DCG was $50 Billion.
Genesis: Centralized Cryptocurrency Prime Broker (provides services to institutions) and offers Custody of Assets, OTC Trading, and Extending Credit.
Grayscale: digital currency asset management company founded in 2013 by Barry Silbert. They are most known for the Grayscale Bitcoin Trust (GBTC) which was also launched in 2013 and has $10B in AUM. For many years, the only way institutions were able to invest in bitcoin, in a compliant manner to the SEC, was through buying shares of GBTC.
Why GBTC is at a High Discount
The trust started to collapse when Terra Luna fell apart in May of 2022.
That’s because 3 Arrows Capital (3AC) and DCG (along with Grayscale and Genesis) to create a scheme where they would borrow USD from Genesis with GBTC as collateral.
Here’s a diagram of the scheme used:
Then 3AC lost billions in the Terra Luna crash, so they were unable to pay back their loans from Genesis.
Since 3AC had declared bankruptcy and the fact they owned so much of the trust cause many who could to sell their shares. And created a discount.
The worry with GBTC now is that investors and creditors in Genesis could go after DCG and Grayscale (majority owner and controller of the trust) in the bankruptcy case.
SBF Contagion
Genesis also suffered losses from the FTX collapse in November.
And after a series of tweets where Genesis kept changing the amount they lost, the final one said they had $175 Million of exposure in a trading account.
Winklevoss Twins vs. Barry Silbert
In one of the most public disputes between CEO’s, Cameron Winklevoss is determined in going after Barry Silbert on Twitter for not repaying the $900 Million Genesis owes Gemini Earn customers.
Gemini Earn: A centralized lending service where users opted into letting Gemini lend out their crypto holdings for interest payments.
Cameron Winklevoss has posted multiple letters like this one calling for Genesis to sit down and come to a resolution with Gemini, Barry Silbert to be fired, and calling out the Promissory Note DCG gave Genesis.
DCG Promissory Note: DCG gave Genesis a $1.1 Billion promissory note in the summer of 2022 to recover from the losses of 3AC and others.
The problem with the promissory note is it did not give the cash to pay off everyone they owed money to right away, but was able to cover up how big the balance sheet hole was.
Winklevoss claims that the Genesis bankruptcy will be good for Gemini Earn customers getting their money back.
Genesis Chapter 11 - What This Means
After denying the rumors, Genesis filed for Chapter 11 Bankruptcy on Friday morning.
Which is a rapidly growing situation and is going to have a significant impact on the market.
However, at the point of writing, the Cryptocurrency market is up.
Bitcoin up 8.47%
Ethereum up 5.62%
Why is this?
This could be for a few reasons:
1 - Market Prices
Market Prices in their natural state are a reflection of all past, present, and future knowledge of an asset. In the case of FTX, Voyager, Celcius, 3AC, Terra Luna, and others we did not see the bankruptcy coming for very long.
In the case of Genesis, people had been discussing the possibility since FTX declared bankruptcy 2 months ago.
2 - Liquidity
We may also not be experience as much of a drop because a good proportion of the investors who would be selling at this point, can’t.
They have their funds locked in Celcius, Voyager, Blockfi, FTX, and Gemini.
The people who are still around are more and more users of cold storage. These people tend to be long-term holders and therefore when bad news hits, they don’t rush to sell.
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Until next time,
Cheers!