Barry Silbert, founder and chief of Digital Currency Group (DCG), has revealed that the company owes $2B to its subsidiaries and external creditors. This news comes shortly after the New York Times published an article reporting that the DCG’s subsidiary Genesis has recently hired the investment bank Moelis & Company to explore options, potentially including bankruptcy,
Barry Silbert Who?
Barry Silbert is the founder and CEO of DCG, a conglomerate of some of the biggest cryptocurrency-focused companies. DCG’s most important subsidiaries include the asset management company Grayscale, crypto lending firm Genesis Global Capital and news site Coindesk. Grayscale has managed over $60B in assets, while Genesis oversaw almost $5B.
Silbert and the DCG have heavily invested in dozens of crypto-based businesses, including Ripple, Ledger, Kraken, eToro, Coinmetrics, Coinbase, Coindesk, and of course, FTX. Needless to say, Silbert and DCG are major influential figures in the crypto space.
Genesis on the Brink
The crypto lending firm has been heavily hit by the FTX devastation after it revealed that its derivatives operation had roughly $175M locked in a trading account of FTX.
The firm made the decision to suspend redemptions and new loan originations shortly after FTX filed for Chapter 11 bankruptcy.
Genesis has been scrambling to finance a $1B emergency loan. A report from Bloomberg indicated that the firm would face bankruptcy if it failed to acquire the necessary funding.
Binance’s CEO Changpeng Zhao recently revealed that the exchange was setting up a recovery fund to aid projects during a liquidity crisis. According to a recent Wall Street Journal report, Genesis asked Binance for an investment. The report noted that “Binance decided not to invest, fearful that some of Genesis’s business could create a conflict of interest down the line, according to one of the people familiar with the matter.”
On top of the already impressive amounts of pressure, the now-defunct Three Arrows Capital (3AC) owes Genesis a loan debt of $2.36B, which it is not likely to see anytime soon.
The Letter
Silbert addressed shareholders in the letter below describing the situation within DCG and its relationship with Genesis. The letter revealed that DCG currently has a liability to Genesis of ~$575M due in May 2023, stemming from an intercompany loan. There is also a $1.1B promissory note due in June 2032 after it assumed control of certain liabilities from Genesis that the firm accrued related to the 3AC default. Whether it be DCG or their creditors, someonewill bear this loss.
On top of that, DCG has $350M in debt from a small group of lenders. If we’re doing the math, DCG owes in aggregate $2.025B, with $1.675B to Genesis and $350M to external lenders.
What Now? We Speculate
Two of DCG’s major assets are Genesis and Grayscale. Genesis is not likely to be a huge source of funding for DCG. It is much more likely that there will be a bank run as depositors on Genesis will aim to remove all assets off the platform as soon as possible.
Grayscale’s two biggest trusts/money makers were GBTC and ETHE. GBTC has ~633,394 BTCs, and with a 2% management fee at $16,500 BTC prices, GBTC is fetching around $209M in expected revenue for this year. ETHE has ~3.04M of ETH, and with the same management fee at $1160 prices, the trust is earning just over $70M. All in all, just shy of $280M in revenue for this year. Selling Grayscale as a business is not likely to have enough of an impact against over $2B in liabilities.
Given that DCG had to take a 575m loan from Genesis to buy back stock, we can probably assume that the firm doesn’t have much cash. But DCG/Grayscale does have tons of GBTC…
DCG could begin to sell GBTC into the market, but with the current free fall of its price, this is also not likely enough to cover the massive debts/liabilities owed.
Closing Thoughts
Regardless of what financial action DCG undertakes, the hole for Genesis is probably too deep to be filled. It is looking more and more likely that Genesis will file for bankruptcy and continue the contagion effect into the rest of the ecosystem.
