US crypto lending company Genesis has filed for bankruptcy. This has been coming for some time for the subsidiary of Digital Currency Group (DCG).

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Technically, Genesis Global Holdco filed for bankruptcy protection with the U.S. last night. Bankruptcy Court for the Southern District of New York.

Bankruptcy was coming

There were several signs that things were not going well for the crypto lending company. At the beginning of this month, it was announced that Genesis was unable to raise money and on January 5, 30% of the staff was fired.

A Genesis spokesperson said at the time:

“As we continue to face unprecedented industry challenges, Genesis has made the difficult decision to reduce our global workforce. These measures are part of our ongoing efforts to move our business forward. We sincerely appreciate the hard work of our talented and dedicated team as we continue to work to find the best long-term outcome for the Genesis business, customers, and employees.”

The consequence of 3AC and FTX

Genesis was scrambling to raise money after taking financial blows from the fall of crypto hedge fund Three Arrows Capital and crypto exchange FTX last year. According to Genesis itself, they had USD 175 million worth of crypto at FTX.

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In mid-November, it was announced that FTX would collapse and a few days later Genesis announced that customers could no longer withdraw crypto.

Genesis emailed customers on Jan. 4 that the company continued to work to find a solution for the company's loan products. But they said they needed a lot of time for this. The problems would only apply to loan products, not to spot trading and derivatives.

Disputes over $1.1 billion

Parent company Digital Currency Group is led by Barry Silbert. He is under fire from creditors, after all, they want to see their money, but Silbert says that is not so easy.

According to the block, there is a $1.1 billion dispute. Genesis Global Capital said in an earlier conversation with creditors that this amount is an asset, which reinforces the appearance of a stronger balance sheet. This amount is a so-called promissory note, but normally it falls under liabilities on the balance sheet.

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Now, among others, the Winklevoss twins, known for the Facebook movie and their crypto exchange Gemini, have filed a claim that they have been financially misled. This started with an open letter from Gemini to Silbert.

Silbert's response also came by letter:

The $1.1 billion promissory note, which matures in 2032, represents DCG's assumption of obligations to Genesis from Three Arrows Capital in connection with their June 2022 default. DCG has no cash, cryptocurrency, or any other form of payment for the promissory note received. Importantly, the $1.1 billion promissory note is non-callable and does not contain other similar features of a callable bond.”

Earn in the crosshairs of the SEC

Today Cameron Winklevoss tweeted that Genesis' bankruptcy filing is a first step towards getting their money back. Or yes, from getting the crypto and money back from their customers.

Crypto exchange Gemini and Genesis, which was declared bankrupt today, had jointly set up a project called Earn. Through this program, users of Gemini could earn interest on their crypto.

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On January 12, the Securities and Exchange Commission charged both Gemini and Genesis with unregistered offering and selling of securities through the Earn Lending program. The agency said the program was offered to retail investors, some of whom were located in the US.

What does this mean for crypto?

The impact of Genesis' bankruptcy depends on the parent company DCG. If DCG is dragged along, this will have an impact on subsidiaries Coindesk, Luno, Foundry, and Grayscale Investments.

Coindesk is a news channel and in theory, can be taken over by another party. Luno is a wallet app where you can trade at least. Foundry is in mining and staking and Grayscale Investments offers one of the most popular crypto funds for institutional investors.

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It may have an impact on the Bitcoin price, as Grayscale manages 631 thousand Bitcoin. But this is doomsday, for now, the problems seem to center on Genesis alone.