Genesis – a crypto investment bank is in talks with investors to seek a tentative of $1 billion in fresh capital, according to a report by Bloomberg. This news has come days after the bank had to halt their withdrawals as an aftermath of the FTX collapse. The lending firm disclosed that it has lost $175 million within FTX. Genesis revealed that they have an outstanding amount of $2.8 billion in loan debt. According to Wall Street, the bank may file for bankruptcy if they do not receive monetary relief. The investment bank had seeked Binance for fresh capital, but was refused as they had a conflict of interest.
“We have no plans to file bankruptcy imminently.” Our goal is to resolve the current situation consensually without the need for any bankruptcy filing, a Genesis representative told Bloomberg.
.@BernsteinBuzz says if @GenesisTrading has to file for bankruptcy, creditors have no claim on the assets of @Grayscale‘s GBTC as it is ring-fenced from failures within parent company @DCGco or DCG group entities. @BernsteinGautam
— CoinDesk (@CoinDesk) November 21, 2022
The lending platform was built by Garry Gilbert – an early adopter of Bitcoin. Genesis is in conversations with potential investors to mitigate an event of insolvency. Crypto exchange named Gemini runs a crypto lending solution in partnership with Genesis tweeted that they will continue working with them to enable the users to redeem their funds through its yield-generating “Earn” initiative.
1/6 We are aware that Genesis Global Capital, LLC (Genesis) — the lending partner of the Earn program — has paused withdrawals and will not be able to meet customer redemptions within the service-level agreement (SLA) of 5 business days. https://t.co/9e48pF3Ymn
— Gemini (@Gemini) November 16, 2022
Grayscale, a subsidiary of the Digital Currency Group, recently declined to share the proof of reserves citing security concerns. Crypto platforms have been dealing with pressure to publicly share their asset reserve information owing to the collapse of the FTX exchange which caused a huge stir in the crypto investing community.
Bitcoin price fell to a fresh two-year low. The og crypto asset has been trading a little above $15k in the last few days. The price of Bitcoin dropped to $15,480 after the Genesis news spread like wildfire. However, the price of BTC has recovered back to $15,913. Bitcoin. The crypto asset was down by 1.35%. While the Moving Average Convergence Divergence (MACD) was down by -122.94 and the Relative Strength Index stood at 33.
Read more: Bitcoin Price Prediction
Unsecured loans to crypto hedge funds
According to sources how much trading Genesis facilitated was reliant on risky debt and crypto valuations that now look implausible. Three representatives aware of the operations at Genesis told Quartz that the company’s loans were sometimes unsecured or secured with collateral from other investors.
Risks loomed over loans that were secured by collateral also had potential risks. These loans were not collateralized properly leaving the lender in an unsecured zone.
Genesis also lent out its clients’ collateral to other borrowers, instead of keeping the funds locked, a practice known as ‘’rehypothecation’’ that is closely regulated in traditional finance that also helped in recovering from the financial crisis of 2008.
Crypto lenders who enter a new and unregulated market have often emphasized the safety of their funds by requiring high levels of collateral. For instance, if a lender gave an investor 100 bitcoins, worth around $1.6 million today, it would require the investor to post more than 100 bitcoin in collateral as protection.
“Overcollateralized” aids in taking risk out of the system and allows crypto lenders to operate without any underwriting or KYC. Loans offered by Genesis sometimes required less collateral than the value of the loan or zero collateral.
Highly uncalculated risks taken by firms like Three Arrows Capital, Voyager and a few others have experienced trouble like Genesis. With the FTX debacle, Genesis being on the verge of reviving from potential bankruptcy may cause the bear market to go further low.
Source: Quartz, CoinDesk