Genesis bankruptcy settlement is a sign of warming in crypto winter
Failed crypto lender Genesis Global Holdco and its major creditors have reached an agreement to resolve its bankruptcy case. For investors owed money by Genesis, that means they can get some of that money back more quickly. But the implications are bigger for the crypto industry.
Before filing for bankruptcy protection last month, Genesis was one of the main crypto lenders. It lent money to institutional investors such as hedge funds for trading, sometimes borrowing from small investors through platforms that allow them to deposit crypto in exchange for double-digit returns. One of those platforms was Gemini Earn, a product offered by the crypto firm founded by the Winklevoss twins, whose clients owe nearly $1 billion.
Genesis also lent money to and was a major subsidiary of Digital Currency Group, a crypto conglomerate and venture capital firm with stakes in every major part of the industry. DCG has said that Genesis’ bankruptcy does not affect its other subsidiaries, but the company has closed one of its operations and laid off employees during the broader crypto downturn.
These connections make a contentious and protracted bankruptcy case particularly charged for the crypto market. Some investors and industry executives feared that if Genesis’ creditors — potentially facing their own liquidity problems with many companies around the industry calling back on loans — couldn’t get their money back quickly, they might sell Bitcoin or other tokens in fire sales. That could send cryptocurrency prices lower, potentially causing more investors to breach margin requirements and be forced to sell in a vicious cycle.
A potential deal could circumvent that scenario, although it means some creditors will never get full recovery.
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“Today’s agreement is a positive step forward and provides a clear path to a consensual resolution that maximizes value,” attorney Paul Aronzon, a member of a special committee of Genesis’ board handling the bankruptcy, said in a statement.
While some details still need to be worked out, Genesis described the outlines of the deal in the courtroom where the bankruptcy case was underway late Monday. Under the deal, DCG would convert a $1.1 billion promissory note due in 2032 that it owed to Genesis into preferred stock. It would also give up its equity in another Genesis unit, which was not part of the bankruptcy case, so it could be sold with potential proceeds to creditors. Gemini would contribute $100 million to supplement recovery for its own clients.
“This plan is a critical step forward toward a significant recovery of assets for all Genesis creditors,” so Gemini co-founder Cameron Winklevoss on Twitter.
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The plan is not finished. Even after the details are finalized, it will still need to be voted on and approved by the creditors. Some creditors may object to the bankruptcy estate receiving preferred equity in DCG, rather than the $1.1 billion due in 2032 under the note, and it’s unclear what value Genesis’ assets will have if sold while the crypto market remains dormant.
“We are pleased to help Genesis reach this agreement” with creditors, DCG said in a statement.
But if the deal goes ahead, it could go a long way to interrupting the chain of dominoes that began to fall last year.
Write to Joe Light at [email protected]
