23rd November 2022 > > Genesis update.

tl;dr

An update on the Genesis/DCG situation, which could turn ugly.

Market Snap

Market Wrap

The perpetual futures market is back in equilibrium as markets appear to believe that recent forecasts for interest rate rises might have slightly overcooked. We can only hope so.

The techies are out stating that this is a bear trap, but no number of squiggles on a graph whose time period is adjusted until you get the result you are looking for, can possibly tell us the outcome of the Genesis situation – see below.

Occasional Series – Saudi Arabia????

Well, that’s not going to help the CCC investment in ARG, the Argentinian fan token. So typical. The first (and now the only) World Cup when I have wanted Argentina to win some games, this goes and happens.

I might buy a boat and set off from Port Stanley to make my way to Buenos Aires all on my lonesome in protest.

That will teach them.

Curious Cryptos’ Commentary – Genesis update

Genesis Global Capital – the lending operation owned by DCG (Digital Currency Group) suspended customer withdrawals following the FTX fraudulent fiasco. Global Capital has disclosed that $175mm of customer funds have been frozen at FTX. Remarkably this isn’t the largest single holding at FTX – that amounts to nearly a quarter of a billion dollars, the owner of which has not been made public.

I do hope that $225mm or so represents only 5-10% of that holder’s crypto stash, as recommended by the CCC.

Global Capital has appointed investment bank Moelis & Company to advise it on options in a bid to avoid declaring bankruptcy. Moelis & Company worked on the Voyager Digital bankruptcy process.

DCG has now declared a $575mm loan due to Global Capital in May 2023. With expected revenues of just $800mm in 2022, it isn’t hard to see that DCG may have some problems raising the finance to repay that loan.

If Global Capital avoids bankruptcy – by raising its target of $500mm to $1bn in new equity – then the companies are free to renegotiate the terms of the loan. If Global Capital is declared insolvent, you can be 100% sure that the liquidators will sue DCG for repayment, possibly putting DCG into bankruptcy.

What a mess.

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DCG borrowed the money from Global Capital to fund share buybacks and other investments.

Once again, we see leverage in play, brutally compounded by correlation risk combining to cause these issues.

TradFi has frequently fallen foul of the same problems, but it seems increasingly clear that there are many crypto businesses that would benefit immensely from employing senior people with 25+ years of investment banking experience to help prevent them from making these mistakes.

I wonder who wants my cv? Form an orderly queue now.

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Which brings us back to the topic of Grayscale and its Bitcoin Trust.

The CCC reported two days ago that for spurious and frankly nonsense reasons that Grayscale was refusing to provide public proof-of-reserves.

Grayscale’s stash of cryptos that back its suite of cryptos trusts is held at Coinbase.

Coinbase – a publicly listed company subject to legislation, regulation, and quarterly audits – has publicly stated that Grayscales reserves are all in order.

This is very encouraging news.