Bitcoin retreats after Grayscale owner DCB reveals $2 billion in debt
Grayscale owner DCB has revealed it is $2bn (£1.65bn) in debt, leaving the value of bitcoin looking increasingly precarious due to the company’s digital assets and ownership of troubled crypto lender Genesis.
Grayscale Bitcoin Trust is one of the world’s largest holders of bitcoin (BTC-USD), with a stash totaling 643,572 BTC, worth $10.6 billion. This is about 3% of all available bitcoin.
Grayscale may be affected by the recent collapse of crypto exchange FTX as parent company Digital Currency Group (DCG) also owns Genesis which has been forced to halt customer withdrawals.
The lending platform has $175 million in locked-up funds on the bankrupt FTX, and investors are waiting to see if DCG will save the struggling subsidiary.
In a note to shareholders on Tuesday, DCG founder Barry Silbert sought to calm investor nerves about the financial health of DCG subsidiaries Genesis, Grayscale Investments and mining company Foundry.
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Silbert wrote: “We’ve weathered previous crypto winters, while this one may feel more severe, we will collectively come out of it stronger.”
Genesis needs a capital injection of 1 billion dollars, according to Reuters. DCG’s debt amounts to just over $2 billion and the company loaned Genesis approximately $575 million. It also absorbed the $1.1 billion debt owed to Genesis by bankrupt crypto hedge fund Three Arrows Capital.
It has been reported that Genesis Global Capital hired investment bank Moelis & Co to explore options, including a potential bankruptcy.
Crypto commentator TradFiWhale said on Twitter: “DCG’s grayscale business is extremely valuable.
“DCG doesn’t want to sell this, so they’ll probably let Genesis go under.
“Genesis will probably file for bankruptcy, I think creditors will eventually get most of their money back, and DCG will survive with a black eye and damaged reputation.”
See: Get Your Money From Exchanges’ Bitboy Crypto Warns After FTX Scandal | Crypto Mile
DCG tweeted: “The impact lies with the lending business at Genesis and does not affect Genesis’ trading or custody business.
“Importantly, this temporary action has no impact on the business operations of DCG and our other wholly-owned subsidiaries.”
Genesis could be the latest domino to fall in a crisis that originated in the corn Terras UST/Luna (LUNA1-USD) crash that took down Three Arrows Capital, Voyager Digital (VYGVQ) and finally FTX, after several months.
However, because Genesis is an institutional lender, the impact of the fall may have greater resonance in the market.
Read more: ‘Get your money from exchanges’, warns Bitboy Crypto after FTX scandal
The crypto lender is estimated to be the main broker for the entire cryptocurrency ecosystem, a place for institutions to access crypto markets.
On Thursday, David Hoffman of the Bankless podcast asked, “Is Genesis going to take down all of cryptocurrency?”
Silbet said: “Despite the difficult industry conditions, I am as excited as ever about the potential for cryptocurrencies and blockchain technology in the coming decades, and DCG is determined to remain at the forefront.”
On Friday, bitcoin was down 1.7% over the past week at $16,471, while ether (ETH-USD) fell 1.6% to $1,182.
After the collapse of FTX led to a number of linked crypto-lending platforms shutting down customer withdrawals, some advocates have looked to decentralized exchanges (DEX) as the solution.
DEXs are a type of cryptocurrency exchange that allows direct peer-to-peer crypto transactions from one digital wallet to another, without the need for an intermediary, and with user funds remaining in the wallet owned by that user.
But what initiatives are actually coming out of the decentralized finance space to respond to the problem of insolvency on centralized platforms?
A collection of decentralized exchanges, such as Drift Protocol, GMX and Perpetual Protocol are “building an aggregated dashboard”, which they promise will provide greater transparency for institutional and retail users.
This new aggregated dashboard will provide information on proof of deposit, insurance funds and loan levels.
Read more: FTX bankruptcy causes 80,000 UK crypto investors to lose money
The collective told Yahoo Finance UK: “We already have the solution to the challenges brought about by FTX’s collapse, decentralized finance, and we need to work together to prove its benefits.
“Our biggest fear is that this event will be used to advance a technology that was built to prevent this in the first place. Now is the time to lean into the promise of DeFi.”
Organizations operating decentralized exchanges are reaching out to global regulatory bodies to initiate a dialogue to improve transparency and security in the industry.
Drift Protocol, GMX and Perpetual Protocol told Yahoo Finance UK: “DeFi as a primitive was designed to prevent the loss of customer deposits that have occurred to date. Although the difference can be confusing for non-crypto native individuals.
“We are here, ready, willing and able to guide any regulator through the clear distinctions that separate DeFi from CeFi.
“We welcome meaningful and productive engagement with regulators to move this area forward.”