Genesis Reportedly Sounds Alarm For Bankruptcy As Lending Unit Struggles

Bankruptcy might be oncoming for the crypto firm Genesis Global following FTX implosion.

Genesis Global Trading is reportedly struggling to raise new capital for its lending arm and is warning potential investors that if its attempts fail, it may have to declare bankruptcy.

According to people familiar with the situation who told Bloomberg, the crypto brokerage is seeking to raise at least $1 billion as it deals with liquidity struggles following FTX’s implosion. The fresh capital search has included discussions about a prospective investment from crypto exchange Binance, which announced earlier its intention to form an “industry recovery fund” to “help projects who are otherwise strong, but in a liquidity crisis.”

Last week, the firm’s lending unit Genesis Global Capital froze redemptions and new loan originations as relayed by its Interim CEO Derar Islim to customers. The redemption halt is due to withdrawal requests exceeding the lender’s liquidity profile; Genesis also disclosed that its derivatives unit had around $175 million tied up and locked in an FTX trading account.

However, Islim then assured investors that Genesis Global Trading is funded and operated independently of the lending entity.

The bankruptcy threat surfaced at the same time that Genesis declared it has “no plans to file bankruptcy imminently.”

“Our goal is to resolve the current situation consensually without the need for any bankruptcy filing,” the firm said in an emailed statement to Reuters and Bloomberg, adding that it continues to have dialogue with creditors.

Gemini also previously revealed that Gemini Earn, a yield product offered to customers, functioned in partnership with Genesis’ lending arm. The company, however, affirmed that its customer funds are backed 1:1 and “available for withdrawal at any time.”

Currently, FTX is in the process of filing for bankruptcy, where around one million creditors are expected to chase the liquidation. Bankman-Fried has already stepped down from management and was replaced by Enron liquidator John J. Ray III as CEO.

Ray was reportedly shocked upon seeing “a complete failure of corporate controls and such a complete absence of trustworthy financial information” in the crypto exchange.

New court filings entered in the bankruptcy process have also recently disclosed that FTX owes its 50 largest unsecured creditors a total of $3.1 billion, with a couple of customers due more than $200 million each.

Last week, Ikigai Asset Management and BlockFi each revealed their exposure to FTX, resulting in the firms halting their respective withdrawals. In its Q3 2022 report, Galaxy Digital reportedly had around $76.8 million in cash and digital assets invested in the embattled crypto exchange, around $47.5 million of which is in the process of being withdrawn.

Information for this briefing was found via Bloomberg, Reuters, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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