Hello Whales,
Before you ask where I have been for the last 5 months, let me tell you,
Dealing with LUNA, 3AC, ETH merge, FTX, and now BlockFi back to back being on the front end as a writer is too exhaustive ser!
But who cares? Here I am again with the diamond hands, and I hope you are BFD.
In a series of turmoil events, we have GENESIS now and let me tell you, if this thing goes sideways (which it’ll most probably NOT), it’ll make FTX & LUNA look like a small correction on the charts.
So now LFG in depth:
The Future Looks Good
November has proven to be another difficult month for investors.
To make matters worse (more details below), crypto lending desk Genesis, investment firm DCG, and asset management Grayscale appear to be clinging to life by a thread as the carnage unfolds.
This is the stage in the bear market where being in crypto is very unpleasant.
Money is difficult to come by. Skeptics are always dunking on us. And for many of you, likely, the whole thing was simply a giant bubble after all.
I won’t get too far into the posting today on that topic.
Instead, I’d want to remind everyone that, despite 2022’s setbacks, the future of cryptocurrency remains bright.
In fact, I’m more confident in crypto than ever.
Why?
Because Alex Mashinsky, SBF, Su Zhu, Kyle Davies, and everyone else implicated in the recent crypto failures do not represent real crypto.
They are opportunists (and crooks) who tried and failed to exploit cryptocurrency as a get-rich-quick platform. Their shortcomings do not imply that crypto has failed.
The truth is just the reverse.
- Despite the turmoil of 2022, Decentralized Finance has remained strong.
- Orders are still being processed by Uniswap.
- Aave and Compound are not insolvent.
- DAI is still worth one dollar.
- Ethereum is still operational.
- Whatever way you slice it, DeFi outperformed centralized crypto this year.
This is a watershed moment in the history of cryptocurrency.
We now have evidence that we do not require folks like SBF to hold our hands.
Why would you when DeFi does it so much better?
And thank heavens it does, since crypto’s goal is still critical.
Fiat currency is still mishandled to the point of hyperinflation. Governments are still using bank account management as a tool to suppress protests. The financial system is still value-extractive and unavailable to most of the world’s population.
Amid 2022’s bad news, crypto has been tackling these concerns.
It has become “essentially a lifesaver” in nations plagued by inflation, such as TURKEY. It has made political activism possible in restrictive governments. And it’s becoming increasingly popular in poorer countries.
Money that is decentralized, transparent, and authentically neutral is still needed in the world. We think that cryptocurrency will fill that need. And the time has not come to abandon that goal.
There’s no reason to be concerned about short-term price decreases caused by negative actors. Prices will rise as crypto meets its objective.
Don’t give up just yet.
**DEEP DIVING**
Genesis and DCG in Mortal danger
While the future seems promising, we couldn’t resist but caution readers that additional short-term agony is expected as the FTX and 3AC pandemic spreads.
Genesis, a famous crypto lending bureau, is the newest possible victim.
Genesis is the largest crypto prime broker, with a total loan volume of $14.6 billionin March.
Unfortunately, it has recently fallen on hard times with the collapses of Luna, 3AC, and FTX. It is now on the verge of bankruptcy.
If you think that’s awful enough, don’t worry because it gets even worse.
Digital Currency Group (DCG) owns Genesis and is heavily indebted to it.
DCG is also the proprietor of the Grayscale Bitcoin Trust (GBTC).
This has raised concerns that if Genesis fails, DCG will be forced to abandon the Grayscale Bitcoin. To cut a long tale short, it’s a disaster.
So let’s attempt to make sense of it all.
A Bad Run of Luck
It’s difficult to imagine a worse year than Genesis in 2022.
The problem started with 3AC. Genesis had loaned $1.1 billion to 3AC, and when 3AC failed, the money went with it. In response, DCG granted Genesis the funds to offset the loss, with a due date of June 2023.
Genesis then suffered a $175 million loss from FTX. DCG came to the rescue again, this time with a $140 million stock investment.
Both of these are terrible events in and of themselves. Still, they are aggravated when they occur during a bear market that has destroyed Genesis lending company, which is now only worth $2.8 billion.
Potential Bankruptcy and Liquidity Crisis
People were naturally scared of centralized crypto companies after the FTX disaster and raced to get out.
Unfortunately, Genesis did not have enough cash to pay the withdrawals. As a result, they had to halt withdrawals and seek new liquidity.
By this stage, you should be aware that stopping withdrawals is the most definite symptom of death. It happened with Celsius, FTX, and, until they raise additional funds, Genesis.
Unfortunately, it appears that more funds will only be forthcoming as Genesis has recruited the investment bank Moelis to investigate bankruptcy.
The Outbreak
Now comes the terrifying part.
Genesis, as stated in the introduction, is owned by DCG. According to CEO Barry Silbert, DCG is presenting $1.675 billion in debtto Genesis.
Covering the 3AC loss cost $1.1 billion, while a previous intercompany loan cost $575 million. That’s a lot of money, and it appears that DCG will need help to cover it.
The only thing they can do to plug the breach is to unwind the Grayscale Bitcoin Trust.
In this scenario, 633,000 Bitcoin would enter the market, causing the price to plummet. A liquidation cascade would almost certainly follow.
Fortunately, we’re not there yet.
DCG and Genesis may yet be able to acquire funds… but time is running out.
If you find this useful, do let me know in the comments!
I will see you next Sunday; till then, SUBSCRIBE to the newsletter and stay healthy.