Crypto trading firm Genesis, one of the world’s largest crypto lenders, is being scrutinized by regulators in the state of Alabama and other U.S. states while it is pursuing financing to the tune of at least $500 million to cover funding gaps.
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The company is the latest experiencing financial contagion from the FTX collapse. Genesis lost $175 million on FTX, and although it received a cash bailout of $140 million from parent company Digital Currency Group, customer runs on funds is making it difficult to stay afloat amid the liquidity crunch.
Genesis denies it is planning to file for bankruptcy, but its parent company Digital Currency Group said this past week that DCG owed Genesis $575 million.
“We have weathered previous crypto winters, and while this one may feel more severe, collectively we will come out of it stronger,” Digital Currency Group CEO Barry Silbert said.
For regulators, the chief concern is how interlinked crypto firms are with another, potentially sparking more crypto firm collapses in the aftermath of FTX and Three Arrows Capital disasters. Regulators are also looking at the violation of securities laws. Described as ‘the Goldman Sachs of crypto,’ the firm had more than $115 billion in trades last year, along with more than $130 billion in loans, making its potential collapse worrisome for the broader industry.
On November 16, Genesis suspended withdrawals, citing “unprecedented market turmoil.” Although the company told customers it had “no plans to file for bankruptcy imminently,” the company’s financial imbroglio has prompted it to seek external help and advice in the aftermath of the announcement.
Its woes have been looming since the summer collapse of crypto hedge fund Three Arrows Capital, which saw it lose $1.2 billion. Although Digital Currency Group offered Genesis a bailout, Genesis was still feeling the financial impact, prompting Genesis CEO Michael Moro to resign and slash 20% of employees.
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