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Genesis Crypto Lending Unit Files for Bankruptcy in the US

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Jan 20 (Reuters) – The lending unit of cryptocurrency firm Genesis filed on Thursday for bankruptcy protection from creditors in the United States, brought down by a market turmoil along with companies including exchange FTX and lender BlockFi.

Genesis Global Capital, one of the biggest crypto lenders, froze customer redemptions on Nov. 16 after FTX stunned the financial world with its bankruptcy, fueling concern that other companies could implode. The company belongs to venture capital firm Digital Currency Group (DCG).

Genesis’ lending unit said it had assets and liabilities in the range of $1 billion to $10 billion, and estimated it had more than 100,000 creditors in its filing in the US Bankruptcy Court for the Southern District of New York.

Genesis Global Holdco, the parent group of Genesis Global Capital, has also filed for bankruptcy protection, along with another Genesis Asia Pacific loan unit.

Genesis Global Holdco said in a statement that it would contemplate a potential sale or equity transaction to pay creditors and that it had $150 million in cash to support the restructuring.

It added that Genesis’ derivatives and spot trading, brokerage and custody businesses were not part of the bankruptcy proceedings and would continue their trading operations with clients.

Genesis’ bankruptcy filing is the latest in a cascade of crypto failures and massive job cuts triggered by the price crash last year.

Genesis was already locked in a dispute with Gemini Trust Co, founded by identical twins cryptocurrency pioneers Cameron and Tyler Winklevoss, former US Olympic rowers. The two companies are fighting over a crypto loan product called Earn, which they jointly offered.

The Winklevoss twins said Genesis owed more than $900 million to about 340,000 Earn investors. On January 10, Cameron Winklevoss called for the removal of Barry Silbert as chief executive of Digital Currency Group.

About an hour after filing for bankruptcy, Cameron Winklevoss tweeted that Silbert and Digital Currency Group continued to deny creditors a fair deal.

“Unless Barry (Silbert) and DCG come to their senses and make creditors a fair offer, we will be filing suit against Barry and DCG shortly,” Winklevoss said in his tweet.

Genesis and Gemini were charged by the US Securities and Exchange Commission on Jan. 12 with illegally selling securities to investors through the Earn program. Tyler Winklevoss called the claim disappointing.

Genesis brokered digital assets for financial institutions such as hedge funds and asset managers, and had nearly $3 billion in total active loans at the end of the third quarter, down from $11.1 billion a year earlier, according to your site.

Last year, Genesis provided $130.6 billion in crypto loans and traded $116.5 billion in assets, according to its website.

Its two biggest borrowers were Three Arrows Capital, a Singapore-based crypto hedge fund, and Alameda Research, a trading company closely affiliated with FTX, a source told Reuters. Both are in bankruptcy proceedings.

Three Arrows’ debt to Genesis was taken over by its parent company Digital Currency Group (DCG), which then filed suit against Three Arrows. DCG’s portfolio companies also include crypto asset manager Grayscale and news service CoinDesk.

Cryptocurrency lenders, which acted as de facto banks, boomed during the pandemic. But, unlike traditional banks, they are not required to maintain capital reserves. Earlier this year, a collateral shortfall forced some lenders – and their clients – to shoulder huge losses.

Reporting by Tom Hals in Wilmington, Delaware and Akanksha Khushi; Editing by Lananh Nguyen, Clarence Fernandez and Kim Coghill

Our Standards: Thomson Reuters Trust Principles.