Barry Silbert’s Digital Currency Group (DCG) has suspended its quarterly payments to shareholders as its struggling Genesis Global subsidiary tips ever closer to bankruptcy.
On Wednesday, Bloomberg cited sources close to Genesis Global Capital, who said the troubled digital asset lending platform was “laying the groundwork for a bankruptcy filing as soon as this week.” The sources cautioned that talks were ongoing and plans could change, but Genesis has been living on borrowed time since it suspended withdrawals last November.
Since then, a public feud erupted between Genesis and Gemini, the digital asset exchange and lending platform run by Cameron and Tyler Winklevoss. Some 340,000 Gemini Earn customers have around $900 million in assets stranded on Genesis, and efforts to negotiate an acceptable resolution have gone nowhere.
Genesis was caught flat-footed by last spring’s collapse of the Three Arrows Capital (3AC) ‘crypto’ hedge fund, which necessitated DCG pumping cash into Genesis and assuming $1.2 billion of the lender’s 3AC-related liabilities (in the form of a promissory note). Complicating matters, DCG also owes Genesis hundreds of millions in both cash and borrowed BTC tokens.
In an attempt to minimize their inept judgment, the Winklevii have accused DCG/Silbert of attempting to defraud Gemini Earn users and others who’d sent assets to Genesis in search of unrealistic rates of return. Cameron recently called on DCG’s board to kick Silbert to the curb while Silbert attempted to distance DCG from its many subsidiaries (only one of which—Grayscale and its various virtual currency trusts—reliably turns a profit).
Last week, the Dutch exchange Bitvavo—which claims DCG owes it €280 million ($302.6 million)— revealed that DCG had offered to “refund at least ±70% of the outstanding amount in a period acceptable to Bitvavo” with the fate of the remaining 30% or so “still under discussion.” A potential Genesis bankruptcy won’t impact Bitvavo customers, as the Dutch company has assumed the risk on their behalf. But still…
Rumors are circulating that a Genesis bankruptcy could include DCG equity for larger creditors and potential leadership changes. Until now, Silbert and DCG have attempted to brave it out by insisting that Genesis’s woes are a matter of liquidity rather than insolvency, but this distinction seems to have lost whatever importance it might have once had.
Blue Barry
Whatever DCG’s public pronouncements, it’s clear the screws are tightening. On Monday, Bloomberg reported on a note DCG sent to shareholders indicating the suspension of quarterly dividends until further notice. The move was explained as “strengthening our balance sheet by reducing operating expenses and preserving liquidity.”
DCG’s balance sheet could get a very modest boost from the sale of its Coindesk media property. The Wall Street Journal reported Wednesday that Coindesk has hired advisors at Lazard to explore a possible sale. Coindesk CEO Kevin Worth said the company had received “numerous inbound indications of interest,” and Lazard was helping “explore various options to attract growth capital … which may include a partial or full sale.”
If Silbert is feeling the pressure, he’s not acknowledging it publicly. His only public statement since the January 10 letter to DCG shareholders was a tweet denying that he had any foreknowledge that the FTX exchange was insolvent.
It’s probably wise for Silbert to keep mum, particularly following last week’s civil charges filed against both Genesis and Gemini by the U.S. Securities and Exchange Commission (SEC) for the offer and sale of unregistered securities.
But Silbert chose to open up about his travails in a softball Wall Street Journal profile this week, insisting that there is “no question about [DCG’s] survival … we have a great group of businesses, and we’re working through this.” (Never mind the HQ Capital’ life and wealth management membership platform’ that DCG abruptly shuttered last week.)
Silbert blamed his current dilemma on the collapses of 3AC and FTX—Genesis had $175 million on FTX when the exchange went dark—but neglected to comment on growing speculation that, prior to 3AC’s inglorious collapse, DCG colluded with 3AC, Genesis, and Grayscale on an in-and-out scheme to boost the value of Grayscale’s BTC-based trust GBTC, from which DCG earns over half its revenue.
Silbert was also not asked about how DCG might stay afloat if FTX creditors try to claw back the $2.5 billion loan that Alameda Research (FTX’s affiliated market-maker) repaid Genesis last summer. Those billions almost certainly included cash stolen from FTX’s rank-and-file customers, who are as anxious to be reunited with their cash as Gemini, Bitvavo, and countless others left high-and-dry by Genesis.
The WSJ’s profile made sure to quote unspecified sources saying Silbert “defers day-to-day decisions to each [DCG] unit’s management.” In other words, Barry’s not responsible for the mistakes of others, so go easy on the guy, will ya?
Masterfraud
While one feels bad for the countless retail investors who (at best) are in for a major haircut on their frozen assets, it’s hard to shed a tear for Silbert. After all, DCG was a prime mover in the shameful campaign to convince everyone that Bitcoin was a store of value akin to ‘digital gold,’ rather than the simple and elegant peer-to-peer electronic cash model described in the 2008 Bitcoin white paper.
As our own Kurt Wuckert Jr. has documented, from its launch in 2015, DCG saw fit to invest in all aspects of the blockchain space. Developers, protocols, exchanges, custodians, media… DCG wanted its fingers in all the pies to ensure a coordinated effort to scupper Bitcoin’s promise of a global platform for cost-effective, friction-free transactions.
DCG’s launch was ably assisted by a bevy of old-school Wall Street financial giants, including Mastercard (NASDAQ: MA), who, for some unexplained reason, didn’t fancy a new competitor offering a payment mechanism absent the ~3% fees that the credit card companies were charging.
Regardless of who was backing DCG, its arrival contributed to the boom/bust speculative casino that has come to represent ‘crypto’ in the public consciousness. It’s a model that has made a few people rich and impoverished many more. Meanwhile, those selling the picks, shovels, hopes, and dreams in this manufactured gold rush have laughed all the way to the bank.
So, pardon us if we enjoy a quiet chuckle at the prospect of one of the digital assets’ prime movers finally being hoisted with his own petard. And if you want to see a real-world vision of what Bitcoin was meant to be, we invite you to take a Bitcoin Masterclass from the man who invented it.
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Ethereum, FTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.
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