FTX Collapse Hits Crypto Brokerage Genesis
Crypto exchange Genesis confirmed on Wednesday that it has stopped customers from making withdrawals and issuing new loans, the latest company to be severely impacted from the collapse of FTX.
The brokerage told TheStreet in an email that it's "number one priority is to serve our clients and preserve their assets," a spokesperson said.
"Therefore, we have taken the difficult decision to temporarily suspend redemptions and new loan originations in the lending business," Genesis said. "We are working diligently to shore up the necessary liquidity to meet our lending client obligations."
The division that has halted the withdrawals is Genesis Global Capital, which works with institutional clients and had $2.8 billion in total active loans as of the end of the third quarter of 2022.
Genesis said it has three primary business lines: spot and derivatives trading, lending and borrowing, and custody.
"Our spot and derivatives trading and custody businesses remain fully operational," the company spokesperson added.
Genesis said via Twitter it is working on a plan for its lending business such as injecting new capital that will be announced next week.
"We have hired the best advisors in the industry to explore all possible options," the company tweeted. "Next week, we will deliver a plan for the lending business. We’re working tirelessly to identify the best solutions for the lending business, including among other things, sourcing new liquidity."
Risks
Genesis also announced the news to its customers on Nov. 16 via a series of tweets.
"We continue to support our clients who rely on us during volatile market conditions to manage their risk and execute on their business strategies," the brokerage said.
The company reinforced that Genesis Global Trading, its broker/dealer that holds its BitLicense, is "independently capitalized and operated – and separate from all other Genesis entities," in a tweet.
Genesis faces major losses when Three Arrow Capital, which is also known as 3AC, became insolvent in May.
The crypto company filed a $1.2 billion claim in bankruptcy court.
Genesis does not have any outstanding liabilities linked to Three Arrows Capital.
"3AC negatively impacted the liquidity and duration profiles of our lending entity Genesis Global Capital," the company tweeted. "Since then, we have been de-risking the book and shoring up our liquidity profile and the quality of our collateral."
The meltdown of FTX, once a major brokerage for trading crypto, has impacted numerous other crypto exchanges and lenders.
1 Million Investors Impacted
FTX could have as many as one million investors who are seeking to recoup their losses.
The Bahamian-based brokerage filed for bankruptcy after facing massive liquidity issues when its potential acquirer, Binance, backed out of a merger.
The bankruptcy attorneys for FTX, Landis Rath & Cobb and Sullivan and Cromwell, said on Nov. 15 that the number of creditors could exceed one million, according to a filing with the U.S. Bankruptcy Court for the District of Delaware.
Several other crypto firms, including Celsius and Voyager Digital, also filed for bankruptcy in 2022 as they also faced liquidity issues and falling prices in bitcoin and other digital asset prices.
FTX was an exchange used by crypto investors that included retail and institutional traders such as several hedge funds. It was backed by numerous high profile venture capitalists such as SoftBank, Ontario Teachers' Pension Plan, Sequoia Capital, Temasek, Sea Capital, IVP, ICONIQ Growth, Tiger Global, Ribbit Capital, Lightspeed Venture Partners, and funds and accounts managed by BlackRock.
The insolvency of FTX, which filed for Chapter 11 bankruptcy on November 11, was the result of a liquidity shortfall when clients attempted to withdraw funds from the platform a few days ago. The liquidity shortfall appears to have been the result of FTX’s founder reportedly transferring $10 billion of customer funds from FTX to his cryptocurrency trading platform Alameda Research, according toReuters, citing two sources that "held senior FTX positions until this week”.
FTX faces a shortfall of $1.7 billion, one source told Reuters, while the other source said between $1 billion and $2 billion was missing. Bankman-Fried, who resigned as CEO, was once hailed as the savior of the sector during the liquidity crisis of last summer. His company was valued at $32 billion in February.
