Genesis, a US-based crypto lender, has filed for Chapter 11 bankruptcy following the demise of cryptocurrency exchange FTX.
Chapter 11 Filings
Genesis Global Capital, one of the three Genesis firms that filed for Chapter 11 protection on Thursday, Jan. 19, stopped client withdrawals on November 16, 2022, only days after FTX filed for the same protection, The Guardian reported.
Genesis Global Capital's parent company, Genesis Global Holdco, and another loan division, Genesis Asia Pacific, have all sought bankruptcy protection.
Genesis Global Holdco has $150 million cash on hand to assist with the reorganization. It has indicated that a sale is one of the possibilities being considered. A Chapter 11 proceeding protects a financially troubled corporation from creditors while it tries to reorganize.
Holding firm Genesis said its derivatives, spot trading, broker-dealer, and custody operations will continue serving their client trading needs despite bankruptcy proceedings.
The bankruptcy filing is the most recent in a series of failures and massive layoffs in the cryptocurrency industry that have been attributed to the steep decline in digital asset values over the last year.
Related Story: Genesis Global Sees $2.8B Loans, Sent to Digital Currency Group, MORE-Revenue to Fall this Year?
Genesis' Previous Months
Genesis lent out $130.6 billion in cryptocurrency last year and transacted $116.5 billion in assets, as stated on the company's website.
One of its largest creditors was the Singapore-based crypto hedge fund Three Arrows Capital, while another was the FTX-affiliated trading firm Alameda Research, according to Reuters' investigation.
Insolvency procedures have been filed by these three firms: Three Arrows, Alameda, and FTX.
Digital Currency Group (DCG), the parent company of Genesis, took over payment of the debt owed by Three Arrows to Genesis and then filed a claim against the crypto exchange. Grayscale, a crypto asset management, and CoinDesk, a crypto news platform, are two of DCG's portfolio firms.
The pandemic saw a surge in the number of crypto lenders, who served as de facto banks. However, unlike conventional banks, online lenders are not mandated to maintain capital buffers. This year, several lenders and their clients had to take on hefty losses due to a lack of collateral.
But since the FTX collapse, the price of the flagship crypto asset, Bitcoin has regained. It is now trading at over $20,000. This is after hovering at about $17,000 when one of its competitors plummeted.
Bitcoin's value increased by about 1% on Friday morning, Jan. 20, reaching $20,946.
Expert's View
Professor Carol Alexander of the University of Sussex's Department of Finance noted that the crypto markets have already factored in Genesis's Chapter 11 filing.
She said that the market is already ignoring Genesis' bankruptcy. In other words, it will not stop the current bitcoin bull run.
The recent volatility in cryptocurrency markets has understandably shaken regular investors. According to Alexander, if and when they see prices moving again, however, they will reinvest in crypto on the assumption that doing so is wise and safe.
See Also: CryptoWatch: Bitcoin's Rise, Twitter's Secret Digital Coins, and Binance's Employment Increase
