Bitcoin IRA Deposits at Genesis Can Make Retirees Broke
Genesis Trading is struggling to raise new capital and warned of a possible restructuring in the wake of the FTX bankruptcy. It has frozen retirement funds owned by Bitcoin IRA customers.
Genesis had recently frozen $175 million of its assets on FTX. The parent company, Barry Silbert’s Digital Currency Group (DCG), gave it $140 million in new equity funding, but reportedly owed Genesis Trading $575 million from another loan. Genesis Trading had $2.8 billion in outstanding loans in the third quarter of 2022 ⏤ some of it due to hedge funds and family offices.
Genesis has hired a restructuring advisor to explore strategic options, including any bankruptcy. Prediction gaming platform Polymarket gave Genesis a 59% chance of insolvency before the end of 2022. This figure should be taken with the caveat that that prediction market once peaked at 81%, meaning that at least compared to the peak moment of fear, a few less people are betting on the Genesis Trading situation going under.
Genesis Trading doesn’t seem as confident of making it to a prosperous 2023. It has stopped withdrawals on its lending platform, affects individuals who hold digital assets in certain retirement accounts. Several of Genesis’ creditors have retained attorneys to pursue a possible restructuring, lawsuit or damage limitation discussions.
Read more: FTX owes $3B to 50 creditors including Genesis and BlockFi
Retirees with a Bitcoin IRA plan exposed to Genesis’ failure
A company called Bitcoin IRA launched its so-called IRA Earn product in February 2021. IRA Earn offered interest as high as 6% annually. Behind the scene, Bitcoin IRA worked with Genesis for its IRA Earn product. Now that Genesis has stopped withdrawals on its lending platform, retirees may have had their pension funds frozen if they used a Bitcoin IRA.
By sending depositors’ money to Genesis, the Bitcoin IRA likely had exposure via Genesis to now-bankrupt companies such as FTX and Three Arrows Capital (3AC). Digital Currency Group had to write off a $1.2 billion loan to 3AC, absorbing the loss to save Genesis.
Even if the Bitcoin IRA was able to withdraw some of the funds from Genesis Trading before it froze withdrawals, other depositors will have to wait until a claim passes restructuring or bankruptcy proceedings – which could take years.
Read more: A Genesis Trading Timeline Stopping Crypto Withdrawals
The situation caused unrest among government officials, along with investors. New York Attorney General Letitia James spoke with her opposition to Congress’ Retirement Savings Modernization Act that proposes to allow retirement accounts to hold digital assets. Letitia James also opposes the Financial Freedom Act of 2022, which would prohibit the Department of Labor from limiting or banning investment options such as digital assets in self-directed brokerage accounts.
Earlier this year, Treasury Secretary Janet Yellen called digital assets unsuitable for retirement accounts because of their volatility.
Bitcoin IRA’s exposure to Genesis Trading highlights the risk of depositing digital assets into a third-party platform that promises an attractive interest rate. Celsius Network and BlockFi typical risks of high yield crypto accounts; both are now bankrupt.
Bitcoin IRA’s Earn page is no longer active. Not only this, it appears to have deleted a number of eyebrow-raising revelations.
Genesis Trading could be the latest casualty of a bad year for digital asset investment firms. It has already frozen withdrawals from escrow assets. This move could hurt retirement account owners who have deposited money into Bitcoin IRA’s IRA Earn product.
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