Genesis Trading Bankruptcy Impacts Could Be Worse Than FTX Collapse.
According to a Nov. 21 Bloomberg report, crypto lending firm, Genesis, told investors it would have to file for bankruptcy because of difficulties raising money for its lending unit.
The reason behind the speculation
There has been some discussion on Twitter about why if the biggest institution lenders in crypto collapse, the impact will be far more significant than in the case of FTX.
A crypto enthusiast who goes by the alias Crypto in Black posted lengthy tweets about what happened to Genesis.
In his opinion, Genesis poses a greater systemic risk than FTX and other crypto bankruptcies, such as FTX and Celcius, because almost everyone lends to them.
Since launching the first OTC bitcoin trading desk in 2013, Genesis has become one of the largest providers in the industry.
In Q4 2021, the firm handled over $50 billion in loans, Genesis was previously exposed to FTX to an extent of $175 million, but then its parents, Digital Currency Group (DCG), injected $150 million into the exchange last week.
In an article published by Bloomberg, the firm warned that it would potentially go bankrupt if it fails to raise $1 billion in funding; the firm asked Binance and Apollo for cash, but Binance turned it down.
“Crypto Lender Genesis Asks Binance and Apollo for Cash
Genesis told clients last week that it paused lending withdrawals while it shored up cash,” said Mario Nawfal, founder and CEO of IBC group, a consulting firm.
🚨If Genesis falls, this could be bigger than FTX. Let’s breakdown the numbers…
— Mario Nawfal (@MarioNawfal) November 19, 2022
“Binance decided not to invest, fearful that some of Genesis’s business could create a conflict of interest down the line,” he added.
According to him, Genesis’ failure to raise money would result in it becoming the biggest casualty of the FTX collapse and resulting in a greater cascade of events.
What comes next?
Then Crypto in Black forecasted what would happen after this, he laid out the probabilities for each scenario.
First, since Genesis is a central lender, there is a possibility of other yield outages. “You can expect other exchanges, lenders or even defi yield protocols to issue statements about their relationships with genesis,” he said.
The company may then leak details about its internal struggles and how much liquidity is missing. “We don‘t know how dire the situation really is. Genesis may took more hits than 3AC and FTX.”
He then further explained “ 3.Assuming Genesis Trading and other related companies under the wing of Digital Currency Group are managing their business affairs better than SBF: Likely announcement of solutions and liquidity funding rounds.”
“4.Continued withdrawal increase. Customers already withdrew billions across exchanges. This trend will sustain until there is a prolonged period of relative stability,” added him.