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Crypto mishaps remain in the spotlight this month to cap off a 2022 that stands in stark contrast to the year that preceded it. Extreme bullishness made this year feel like it’d be all milk and honey for the crypto industry. That couldn’t be further from the truth in retrospect, with the industry dropping $2 trillion in value. Such hardships have put a number of companies on the verge of bankruptcy — even the largest of institutional players. The Genesis crypto brokerage, a powerhouse associated with investing company Grayscale, is one such company teetering on disaster. Fellow crypto exchange and business partner Gemini is stepping in to ensure that this worst-case scenario doesn’t play out.
When FTX imploded in November, the ripple effect it caused led to financial hardships for most other projects. Downward pressure on crypto prices as investors sold off their assets would squeeze companies like Genesis through the wringer.
Genesis is one of the main components of Digital Currency Group’s satellite of crypto companies, alongside Grayscale. While both companies have been leaders in their respective spaces for years, DCG finds itself owing over $2 billion in debt. Much of this debt comes through exposure to the bankrupt firm Three Arrows Capital, but over $1.7 billion is owed to Genesis, which froze assets recently due to the market’s volatility and a lack of liquidity to meet withdrawals.
These woes are joined by more problems at Grayscale, whose portfolio size has shrunk from $43 billion in December of last year to just over $15 billion today. Put simply, DCG is in a situation that will be difficult to escape cleanly. Luckily for the trio of companies, a close partner is stepping in to help strategize its important next steps.
Genesis Crypto Brokerage Sees Help From Gemini in Navigating Liquidity Troubles
Investors have worried in recent weeks about the health of DCG and its subsidiaries, and many believe it to be the next crypto ecosystem to implode. Even as DCG assures investors it isn’t in imminent danger, trust in these projects is rightfully at a low point thanks to FTX. Though, some positive news out of the Gemini camp is helping to assuage these worries. The company is trying to ease the pain for the Genesis crypto brokerage and limit further fiscal damage to DCG.
Gemini and Genesis have a history together. The pair partnered up in 2021 to create Gemini’s Earn program. The Earn program guarantees its users fixed returns as a reward for staking their assets. Genesis is the primary liquidity partner for the venture. Earn has been highly popular among Gemini users; but, in November, customer assets were frozen in response to the FTX contagion. Genesis lacks the necessary liquidity to pay out customers’ redemption requests. In total, it owes Gemini customers an eye-watering $900 million.
A creditor committee, including Gemini, is working with Genesis to reorganize its business. Through the committee, Genesis should hopefully be able to dig up funds to repay clients without drastic losses. A plan by this committee was presented to DCG on Wednesday by investment firm Houlihan Lokey (NYSE:HLI). It is assuming an advisor role on behalf of the creditor committee throughout the restructuring process. Houlihan Lokey has worked in these types of advisory roles in the past with the likes of Lehman Brothers. DCG and Genesis are expected to respond to the plan at some point this week.
On the date of publication, Brenden Rearick did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.