Cryptocurrency lender Genesis said to be preparing bankruptcy filing

Genesis Global Capital is laying the groundwork for a bankruptcy filing as soon as this week, sources have said.

The cryptocurrency lending unit of the Digital Currency Group has been in confidential negotiations with various creditor groups amid a liquidity crunch.

It warned recently that it could file for bankruptcy if it fails to raise cash.

Representatives at Genesis Global Capital did not immediately respond to requests for comment. A representative for DCG declined to comment.

Talks are continuing and plans could change, the sources said.

Financial pressure at Barry Silbert’s DCG began to emerge after the collapse of hedge fund Three Arrows Capital. Genesis suspended withdrawals in November, soon after cryptocurrency exchange FTX — where Genesis held some of its funds — filed for bankruptcy.

The failures have had ripple effects on cryptocurrency exchange Gemini Trust, run by Cameron and Tyler Winklevoss.

Gemini Earn — a service that let Gemini’s users receive yields for lending out their coins through Genesis — stopped redemptions as well.

Creditors, Genesis and DCG exchanged several proposals but have so far failed to come to an agreement, the sources said. Kirkland & Ellis and Proskauer Rose have been advising groups of creditors.

The company is working towards a restructuring plan and swapped proposals with its creditors in the past, some of whom suggested receiving a mix of cash and equity from DCG, the sources said.

DCG told shareholders that it was suspending quarterly dividends to conserve cash, according to a January 17 letter to shareholders.

DCG property CoinDesk, a cryptocurrency news site, told Bloomberg on Wednesday that it engaged Lazard as a financial adviser to explore options including a partial or full sale.

On Thursday, Bitcoin extended declines after snapping a rare 14-day winning streak as a mood of caution supplanted the risk appetite that drove up a variety of assets at the start of the year.

The largest token fell by as much as 0.7 per cent on Thursday and was trading at about $20,700 as of 9.20am in Tokyo. Smaller coins such as Ether, Solana and Polkadot also posted modest losses.

Bitcoin “has now become very overbought on a near-term basis” and is “getting ready for a short-term pullback”, said Matt Maley, chief market strategist at Miller Tabak + Co.

US shares fell and Treasuries rallied on Wednesday on economic growth concerns, and that sombre mood washed across digital assets too.

The cryptocurrency sector also continues to grapple with the fallout of the collapse of the FTX exchange.

Bitcoin’s 14-day relative strength index has dropped from more than 90 but remains above 70, the threshold for “overbought” conditions.

For some strategists, that hints at the possibility of a pause in Bitcoin’s 2023 advance.

Bitcoin and a gauge of the top 100 tokens have both jumped more than 20 per cent this year, alleviating at least a sliver of last year’s digital-asset rout.

Much of that has been driven by the view that debilitating interest-rate increases are coming to an end as inflation cools.

Virtual coins have shed about $2 trillion since a peak in November 2021, precipitating a series of blow-ups that led a large number of institutional and retail investors to wash their hands of cryptocurrencies.

Updated: January 19, 2023, 5:42 AM