First Mover Asia: Bitcoin Sinks Amid Crypto's Latest Debacle
Good morning. Here’s what’s happening:
Prices: Bitcoin and other cryptos sank after the lending arm of crypto investment bank Genesis Global Trading suspended customer withdrawals.
Insights: The fallout from FTX's collapse continues to widen. What's likely to happen next in the industry?
Bitcoin Sinks Amid Crypto's Latest Debacle
By James Rubin
Et tu, Genesis Global Capital?
Crypto's latest stab in the back came Wednesday morning as the lending arm of crypto investment bank Genesis Global Trading temporarily suspended redemptions and new loan originations, adding to the rapidly widening fallout from crypto exchange FTX’s collapse.
Crypto markets recoiled with most major cryptocurrencies spending much of the day in the red.
Bitcoin was recently trading just below $16,700, down 1.4% over the past 24 hours as Bitcoin investors resumed their defensive posture of the past week. Ether was recently changing hands at about $1,200, a 3.7% decline. Other major altcoins were largely in the red with CEL and UNI both off more than 5%. FTX’s FTT token declined nearly 4% and was trading at just $1.66, far removed from its high near $36 earlier in the year.
Genesis Interim CEO Derar Islim told customers on a call that Genesis is exploring solutions for the lending unit, including finding a source of fresh liquidity. He said Genesis intends to detail its plan to clients next week. Genesis Global Capital serves an institutional client base and had $2.8 billion in total active loans as of the end of the third quarter of 2022, according to the company’s website. Genesis owner Digital Currency Group (DCG) is also the parent company of CoinDesk.
"Today Genesis Global Capital, Genesis's lending business, made the difficult decision to temporarily suspend redemptions and new loan originations. This decision was made in response to the extreme market dislocation and loss of industry confidence caused by the FTX implosion," said Amanda Cowie, vice president of communications and marketing at DCG.
Equity markets continued to pay scant attention to crypto's ongoing travails. The tech heavy Nasdaq jumped more than a percentage point, while the S&P 500 and Dow Jones Industrial Average (DJIA) dropped slightly.
Genesis’ announcement is the latest entanglement to FTX’s liquidity crisis and subsequent filing for Chapter 11 bankruptcy protection last week. The industry is already reeling from multiple debacles earlier this year, including the collapse of the terraUSD (UST) stablecoin and the LUNA token that backs it.
In an email to CoinDesk, Gene Hoffman, president and COO of energy efficient blockchain Chia Network, noted in an email to CoinDesk that Genesis Global Capital is suffering from "the type of problem (that) blockchains are built to solve."
"The Wall Street paradigms and behaviors applied to the emerging technology are what keep blowing up, and will continue to blow up," Hoffman wrote. "Cryptocurrency doesn’t add anything to lending, and yet we’ve seen actors in the space extending themselves and cranking up their leverage with dubious assets and no oversight.
He added: The industry has to move beyond the “crypto bro” schemes and rugpulls. Crypto and blockchain are not an “asset class” but are a set of rivalrous technologies and we should approach cryptocurrency and blockchain responsibly."
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FTX Fallout Widens. What's Next for the Crypto Industry?
By Shaurya Malwa
Crypto markets have a way of ignoring time.
Some weeks pass with markets and technical developments moving slower than a snail’s leisurely walk.
Then there are days that pack months – or arguably years’ – worth of action into a few hours. The recent collapse of crypto exchange FTX and spreading fallout belongs to the latter category. In a few days, one of crypto’s flagship enterprises has evaporated, and contagion has gripped markets swept up in new doubts about the industry’s stability.
Crypto funds and projects have lost hundreds of millions of dollars custodied on exchanges and lending companies have ceased certain operations, most recently the lending arm of crypto investment bank Genesis Global Trading, which suspended withdrawals on Wednesday. Genesis Global Capital had $2.8 billion in active loans in its recently completed third quarter, as CoinDesk reported.
Genesis Global Trading CoinDesk are independent subsidiaries of the same parent firm, Digital Currency Group (DCG).
In a call early Wednesday, Interim CEO Derar Islim told customers that the company’s issues related to FTX’s collapse.
Islim said that Genesis is exploring solutions for the lending unit, including finding a source of fresh liquidity. He added Genesis intends to detail its plan to clients next week. The story now sounds like a refrain of the crypto industry’s myriad tragedies of recent months. Terraform Labs, Celsius and Three Arrows Capital all offered some vague hope of making good to customers, even as their paper walls were crumpling. What hope has Genesis Global Capital?
Last week, Genesis disclosed that its derivatives unit had about $175 million in locked funds in its FTX trading account. As a result, DCG opted to strengthen Genesis’ balance sheet with an equity infusion of $140 million.
The announcement was noted by Gemini, the crypto exchange and custodian that has a partnership with Genesis.
"We are working with the Genesis team to help customers redeem their funds from the Earn program as quickly as possible," Gemini said in a statement, adding that it was “encouraged by Genesis’ and its parent company Digital Currency Group’s commitment to doing everything in their power to fulfill their obligations to customers under the Earn program."
To be sure, Genesis has not declared solvency issues. The client call implied Genesis was currently illiquid due to market conditions but not insolvent, which would mean it was unable to pay debts owed.
Scores of market participants on Crypto Twitter floated theories of how Genesis’ problems would affect the market – ranging from the impact on DCG-owned investment firm Grayscale’s bitcoin and ether products to on-chain sleuths signaling trouble at crypto exchange Gemini, citing on-chain data.
Some opine the search for liquidity to help Genesis may see it unwind part of its GBTC holdings, a Grayscale product that tracks bitcoin, causing prices of bitcoin to plummet to as low as $8,000.
Genesis is a big player in crypto that a year ago, in what now seems the long-ago, pre-bear market past, had
over $50 billion in loan originations and $12.5 billion in active loans. It traded over $31 billion in spot volume and over $21 billion in derivatives volumes. Those volumes fell last quarter, however, because of troubles at Three Arrows Capital, another once-high-flying crypto fund.
Traditional finance market participants liken the ongoing crisis to historic macro events, such as Long Term Capital Management’s (LTCM) billion-dollar imposition in the early 90s and Lehman Brothers’ fall from grace in 2008.
Some of these institutions may soon be caught up in the current mess. The next chapters in this ongoing, unsavory saga are difficult to predict, although the chances are likely that conditions will worsen before they improve.
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As the ripple effects from the FTX collapse weigh on the industry, "First Mover" covered the latest developments, including the impact on BlockFi, CoinDesk sister company Genesis and Sam Bankman-Fried himself as FTX prepares for bankruptcy proceedings. Lisa Bragança, former SEC enforcement branch chief, Arca CIO Jeff Dorman and Oppenheimer Senior Analyst Owen Lau joined "First Mover" to discuss.
4 Key Takeaways from the FTX Fiasco: The real reason why the FTX failure hits so hard is not because the crypto industry was duped, but because it proved that the industry was vulnerable to being duped.
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Grayscale Declares 'Business as Usual' Despite Sister Company Genesis Global Capital Suspending Withdrawals: Grayscale said that "Genesis Global Capital is not a counterparty or service provider for any Grayscale product."