Embattled Crypto Lender Genesis Set to File for Bankruptcy

Troubled crypto lending firm Genesis is now set to file for bankruptcy protection as soon as this week, Bloomberg reported Wednesday, citing people familiar with the matter.

The move is unsurprising as the firm has signaled the possibility of filing for bankruptcy on at least two different occasions. A November report revealed that the firm needed a minimum of $1 billion to solve its liquidity issues. The firm added that it would file for bankruptcy if the plan to raise capital does not go through.

Earlier this month, Genesis reiterated its plan to file for bankruptcy while laying off 30% of its workforce. At the time, the lending company declared that it was in the works with the investment bank, Moelis & Co., to consider the matter.

Bankruptcy Filing Within a Week

In its latest report, the embattled crypto lender stated that it has been making confidential negotiations with various creditor groups about settling liquidity issues. Legal firms Kirkland & Ellis and Proskauer Rose are currently serving as advisors to groups of creditors.

In addition, the following entities have failed to agree on how to address the financial problems – creditors of the crypto lending firm, Genesis itself, and Digital Currency Group (DCG), the parent company of Genesis.

Despite the likelihood of filing for bankruptcy, the individuals who shared the matter stated that “plans could change” since “talks are [still] ongoing.”

Meanwhile, a last week’s report confirmed that the United States Securities and Exchange Commission (SEC) had sued Genesis and crypto exchange Gemini over the public sale of unregistered securities. 

The Cause of Genesis’ Business Failure

Genesis’ catastrophic business failure springs from a series of events that have plagued the crypto industry within the past year.

At the time of the collapse of crypto hedge fund Three Arrows Capital (3AC) in July, Genesis declared that it held a massive $1.2 billion fund locked up in the hedge fund. The inability to recover the funds caused its parent firm, DCG, to come to its rescue.

During FTX’s dramatic demise in November 2022, the crypto lender’s financial problems again came to light. At that time, it held active loans worth $2.8 billion. Part of its yield, $175 million, was locked up in FTX. Among its several affected creditors, the crypto firm Gemini is prominent.

This contributed to the insolvent state of Genesis. A bankruptcy filing would place Genesis on the bandwagon of several crypto firms that have gone bankrupt within a year.

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