Genesis need $1 billion in cash by Monday, and Gemini anticipates major bitcoin withdrawals as insolvency worries spread throughout the sector.

Genesis Seeking Liquidity Infusion
If you’re not familiar with Genesis Trading, you should be. They are the institutional infrastructure’s backbone.
Investors in bitcoin and the larger crypto markets Genesis Trading was the brokerage that facilitated all of the lending, trading, hedging, exchange yields, and other activities in the space. Remember the juicy yields from the BlockFi and Gemini Earn products in the space? Genesis acts as a go-between for such platforms and hedge funds in order to create that income.

Genesis had a brief client call to communicate the suspension of redemptions, withdrawals, and new loan originations. With exposure to FTX and Alameda Research, the business now requires another liquidity injection after having roughly $175 million tied up in a trading account with FTX. As a first response, Grayscale’s parent firm, Digital Currency Group (DCG), invested $140 million into the company to keep things functioning smoothly Nonetheless, Genesis is now scrambling for additional funding. This is why Gemini Earn had to cease withdrawals.

Whilst Gemini has said that the rest of their operations are operational as usual, restricting the Gemini Earn product and experiencing service interruptions across the site appear to have triggered a minor rush to get bitcoin off the exchange: Over the previous 24 hours, 13% of the entire bitcoin balance has been depleted. As previously stated,

As previously said, exchanges are not the place to store your bitcoin, especially when there is a strong likelihood that another exchange (or possibly numerous) may fail.

Genesis need a $1 billion liquidity injection by Monday, while Gemini anticipates massive bitcoin withdrawals due to market volatility.

Throughout the sector, bankruptcy spread.

To give you a notion of scale, during the top of the market in 2021, Genesis had $50 billion in loan originations in one quarter and a $12.5 billion active loan book. However, loan originations and the active loan book both fell significantly in the third quarter of this year, falling to $8.4 billion and $2.8 billion, respectively. Genesis filed a $1.2 billion claim against Three Arrows Capital in July, which was taken up by DCG in order to keep the impact off Genesis’ books. Loans were partially collateralized by GBTC, ETHE, AVAX, and NEAR token shares.

According to on-chain activity, Genesis had several transactions with Alameda, Gemini, and BlockFi via their OTC.

FTT was also a popular token received and sent on the trading floor. We don’t know the size of the exposure and money required to make clients whole until Genesis shares additional information. However, the fact that the parent firm DCG has not yet stepped in to give further liquidity injection is a red flag as to where this may end up. Genesis has announced that it is seeking a $1 billion loan facility immediately. That’s not good.

In the most dire situation, the absence of cash provided by DCG might raise concerns about the availability of liquid assets. DCG and Grayscale have previously dissolved trusts, and the possibility is not off the table. It’s an improbable approach, but it’s worth noting because Grayscale is the largest bitcoin holder.
Grayscale Bitcoin Trust, which has about 633,600 bitcoin. This might well be a regulatory issue or another constraint (that we are unaware of) where DCG is unable to provide financing to Genesis.

Circle, the company behind the stablecoin USDC, is also linked to Genesis. Nonetheless, they emphasize that their Circle Yield product only accounts for $2.6 million in outstanding collateralized loans, which, if accurate, is quite minor.

We’ll certainly hear more about Genesis in the coming days, as they want/need the money infusion by Monday. If withdrawals are blocked and money stay frozen, this would be a tremendous blow to a slew of industry entities. Genesis explains why the general spread of the FTX and yet the collapse of Alameda Research has yet to occur. Defaults and insolvencies occur in waves rather than all at once. It might take weeks or months to determine where the greatest gaps are and who is experiencing liquidity, counterparty, and/or insolvency issues.

Furthermore, practically every significant participant and market maker has removed cash from exchanges in order to strengthen their own balance sheets and reduce counterparty risk. The market’s liquidity is low, and the stage is set for volatility. Despite the fact that the market appears to have found a temporary bottom among all of the unfavorable news reports over the previous week, the unknown downside risk still outweighs the upward potential in the short term.

Natasha Dean

With an eye for detail and understanding of this exciting industry. My experience has given me an understanding of crypto trends and how to effectively break them down. I have a soft spot for NFTs and the Metaverse.