Genesis filing for bankruptcy has added to the downturn of the crypto market. The lending arm of the cryptocurrency firm Genesis, namely Genesis Global Capital filed for bankruptcy on Thursday (19th January). Source. The parent company of the firm is the venture capital firm Digital Currency Group.

Genesis filed for chapter 11 bankruptcy in the Federal Court in the Southern District of New York. This major downturn comes after a series of bankruptcies in the crypto space. Some of the prominent ones include: bankruptcy filing of FTX, BlockFi (lender), Voyager (July 1-2022) and Celsius Network(July 13-2022). It also includes the Nasdaq listed crypto mining company- Core Scientific (CORZ)- which filed for bankruptcy in December 2022.

How much assets and liabilities are disclosed?

Assets and liabilities disclosed in the bankruptcy are in the range of $1 Billion to $10 Billion. Genesis declared in the bankruptcy filing that it has over 100,000 creditors. Source.

The bankruptcy filing includes:

  • Genesis Global Capital
  • Genesis Global Holdco (parent company of Genesis Global Capital)
  • Genesis Asia Pacific

However, Genesis’ derivatives and spot trading, broker-dealer businesses are not part of the bankruptcy process. However, as per my view, these businesses might have a cascading effect and can share the brunt of the downturns.

Reportedly, last year Genesis extended $130.6 billion in crypto loans and traded $116.5 billion in assets. Source.

Two of the biggest borrowers of the Genesis lending arm were Three Arrows Capital, a Singapore-based crypto hedge fund, and Almeda Research, a trading company that closely worked with FTX. Both FTX and Three Arrows Company were already in bankruptcy proceedings which were supposed to trigger Genesis bankruptcy.

What exactly caused it?

So everything started with a defaulted loan of $2.36 Billion lent by Genesis to Three Arrows Capital (3AC). 3AC filed for bankruptcy last year in 2022, which created a dent in the accounting statement of Genesis.

Digital Currency Group (DCG), the parent company of Genesis tried to raise equity (funds) in a venture round to fill in the hole in the accounts of Genesis by replacing a bad asset (loan to 3AC) with a good asset (10-year loan which could have given Genesis some earned interest).

DCG failed to raise the equity and this triggered a series of events finally leading to Genesis filing of bankruptcy.

What is Chapter 11 bankruptcy?

A Chapter 11 bankruptcy allows a loss making company to stay in business by restructuring or reorganizing its obligations. A form of bankruptcy in which a loss-making company gets to a considerable shutdown of its business for reorganization.

Reorganization is done to make the company profitable again. Reorganization may be in the form of laying off employees, shutting down or selling off divisions, replacing management, and cutting budgets.

Genesis filing for bankruptcy: Who will be effected?

Okay, let’s face it. We cannot change a past bad event. Bygones are bygones. But we do need to chart out a plan so that the damage is minimized.

In cases of bankruptcies of organizations we need to first identify whether we are effected by the event or not?The parties that may be impacted by Genesis filing for bankruptcy should be within the below-given list.

  1. Retail customers and investors: This is the group of people that includes most of us. We, the retail investors or customers who had used the lending services of Genesis. Either we could have deposited funds to be lent out further to borrowers and hence earn interest. Or, we could have taken a loan from Genesis.
  2. Institutional investors: There are big institutional investors like insurance companies, and hedge funds, which manage and invest the money of their customers. There are these institutional investors who have their customers’ money to Genesis for interest. These institutional investors and their customers will be impacted. Gemini is at the top of this list.
  3. Employees: Employees of the platform may be impacted by a bankruptcy filing, as they may lose their jobs or face reduced compensation. Especially chapter 11 bankruptcy filing is about reorganizing the firm to attain stability. This reorganization often includes mass layoffs by the firm of its employees.

The extent of the impact on each of these groups will depend on the specific circumstances of the bankruptcy and the assets and liabilities of the platform at the time of the filing.

Genesis filing for bankruptcy: What steps do you need to take?

So now what? If you had invested in Genesis, what are those steps that you need to take to protect your money and might recover them?

  1. Keep yourself updated with the proceedings and news: Please keep a close watch on the news and social media. Follow relevant news channels, and YouTube Channels to keep yourself abreast with the latest news and proceedings around Genesis filing for bankruptcy.
    You can follow the below:
    Real Vision Crypto
    The Block
    And there are many more.
  2. Keep a close watch on your mailbox: There can be notifications, news and instructions coming to your mailbox, which might need you to take immediate action. Hence, in this period of crisis, keep a close eye on your mailbox.
  3. You can file a claim: If possible, in case your time and pocket allow, file a claim in bankruptcy court. Hire a professional bankruptcy lawyer who could represent your interests in court.
  4. Gather all your documents and transactions: Now is the time, that you need to prove that you had a business going on with Genesis. Gather all the documents, transactions, snapshots or whatever can prove your transactions with Genesis.
  5. Join a creditor or investors’ committee: Not that I am knowing one, but there might be committees formed of creditors and investors who would fight together to recover their funds from the Genesis bankruptcy. Try and join these committees. These committees will help you to be abreast of the proceedings, network with people and institutions facing the same crisis and give you the direction to recover your funds, among other things.
  6. Do not panic and be ready for outcomes: Cryptocurrency investments are riskier than conventional financial assets. They are not backed by the government or any regulating bodies. I believe all of us who are invested somehow in the crypto space understand this. So, in this Genesis crisis also, do not lose hope, yet be prepared to lose some or all of your investments.

    The recovery you will make will be dependent on the court proceedings and how other creditors are able to present their interests. Hence, put your best foot forward to recover your lost funds but at the same time be prepared of the worst outcome of maybe losing a fraction or all of the invetsments.

Note: Genesis Global Holdco planning for a potential sale to compensate the creditors and a cash of $150 million to support restructuring. Keep a close watch to your mail box or any mode the crypto exchange used to communicate with you.

Genesis filing for bankruptcy-Conclusion

Genesis filing for bankruptcy is an addition to the downturn of the crypto industry. It might lead to further bankruptcies filings of the creditors which had large stakes invested with Genesis. According to my understanding, Gemini which is the biggest creditors of Genesis might see similar crisis. There are few creditors whose names have not been revealed in the bankruptcy filing.

However, we need to go low profile in our crypto investments for some time now. There is a looming series of downturns expected in the overall global financial market also.

Keep all your cryptocurrencies in cold wallets, so that if for whatever reasons a cryptocurrency exchange goes down, your crypto is safe.

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