Bitcoin reels after Grayscale owner DCB discloses $2 billion in debt

Barry Silbert, founder and CEO, Digital Currency Group said he can handle the cryptocurrency winter chill. Photo: Heidi Gutman/CNBC/NBCU Photo Bank/NBCUniversal via Getty

Grayscale owner DCB has revealed it is $2bn (£1.65bn) in debt, making bitcoin’s value look increasingly precarious due to the company’s digital asset holdings and its ownership of the troubled cryptocurrency lender genesis.

The Grayscale Bitcoin Trust is one of the world’s largest holders of bitcoin (BTC-USD), with a total stash of 643,572 BTC, valued at $10.6 billion. This is about 3% of all available bitcoins.

Grayscale may be impacted by the recent crash of cryptocurrency exchange FTX as its parent company Digital Currency Group (DCG) also owns Genesis, which has been forced to halt customer withdrawals.

The lending platform has $175 million of funds locked up on the bankrupt FTX exchange and investors are waiting to see if DCG will bail out the ailing subsidiary.

In a note to shareholders on Tuesday, DCG founder Barry Silbert attempted to calm investors’ nerves over the financial health of DCG Genesis subsidiaries Grayscale Investments and mining firm Foundry.

Check: Real-time prices of cryptocurrencies

Silbert wrote, “We have weathered previous crypto winters, while this one may feel harsher, collectively we will come out stronger.”

Genesis needs a $1 billion capital injection, according to Reuters. DCG’s debts total just over $2 billion, and the company has loaned Genesis about $575 million. It also absorbed the $1.1 billion in debt that bankrupt cryptocurrency hedge fund Three Arrows Capital owed Genesis.

It has been reported that Genesis Global Capital has hired investment bank Moelis & Co to explore options, including a potential bankruptcy.

Crypto-commentator TradFiWhale he said on Twitter: “DCG’s Grayscale business is extremely valuable.

“DCG doesn’t want to fire off the sale, so they’ll probably let Genesis go under.

“Genesis will probably file for bankruptcy, I think the creditors will eventually get most of the money back and DCG will survive with a black eye and a ruined reputation.”

Watch: Get your money off exchange’ warns Bitboy Crypto after FTX scandal | The mile of cryptocurrencies

DCG tweeted: “The impact is to Genesis’ lending business and does not affect Genesis’ commercial or custodial businesses.

“Importantly, this interim action has no impact on the business operations of DCG and our other wholly owned subsidiaries.”

Genesis may be the latest domino to fall in a slump that originates in May’s Terra UST/Luna (LUNA1-USD) crash that took down Three Arrows Capital, Voyager Digital (VYGVQ) and finally FTX, after several months.

However, as Genesis is an institutional lender, the impact of its downfall could have wider market repercussions.

Read more: “Take Your Money From Exchanges,” Bitboy Crypto Warns After FTX Scandal

The cryptocurrency lender is estimated to be the main intermediary of the entire cryptocurrency ecosystem, a place where institutions can access the cryptocurrency markets.

On Thursday, David Hoffman of the Bankless Podcast asked, “Will Genesis bring down the entire cryptocurrency?”

Silbet said, “Despite challenging industry conditions, I am more excited than ever about the potential of cryptocurrencies and blockchain technology in the coming decades, and DCG is determined to stay at the forefront.”

Bitcoin fell 1.7% over the past week to $16,471 on Friday, while ether (ETH-USD) fell 1.6% to $1,182.

FTX crash

After the FTX crash led to a number of related cryptocurrency lending platforms halting customer withdrawals, some proponents looked to decentralized exchanges (DEX) as a solution.

DEXs are a type of cryptocurrency exchange that allows for direct peer-to-peer cryptographic transactions from one digital wallet to another, without the need for an intermediary and with users’ funds remaining in that user’s owned wallet.

However, what initiatives are actually moving out of the decentralized finance space to address the insolvency problem 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 enable greater transparency for institutional and retail users.

This new aggregated dashboard will provide information on proof of deposits, insurance funds and debt levels.

Read more: FTX bankruptcy sees 80,000 UK cryptocurrency investors lose funds

The collective told Yahoo Finance UK: “We already have the solution to the challenges unearthed by the collapse of FTX, decentralized finance, and we need to work collaboratively to demonstrate its merits.

“Our greatest fear is that this incident is being used to hinder the development of a technology that was built to prevent it 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 start 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 which has occurred to date. Although the distinction may 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 space forward.”

Look: What Would Karl Marx Think About Cryptocurrencies? – The Crypto Mile Episode 7

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