Genesis Crypto Brokerage Draws Up A Plan With Gemini To Avoid The Next Crypto Crash

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Crypto misadventures remain in the spotlight this month to cap off a 2022 that stands in stark contrast to the year before it. Extreme optimism has made this year feel like it would be milk and honey for the crypto industry. In retrospect, that couldn’t be further from the truth, with the industry losing $2 trillion in value. Such difficulties have brought a number of companies to the brink of bankruptcy, even the largest institutional players. Crypto brokerage Genesis, a powerhouse associated with investment firm Grayscale, is one such company teetering on the brink of disaster. Fellow crypto exchange and trading partner Gemini is stepping in to ensure this worst-case scenario doesn’t happen again.

When FTX imploded in November, the ripple effect it caused led to financial hardship for most other projects. Downward pressure on crypto prices as investors sell 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 fields for years, DCG finds itself with more than $2 billion in debt. Much of that debt comes from exposure to bankrupt company Three Arrows Capital, but more than $1.7 billion is owed to Genesis, which recently froze assets due to market volatility and… a lack of liquidity to meet withdrawals.

These woes are joined by other problems at Grayscale, whose portfolio size has shrunk from $43 billion in December last year to just over $15 billion today. Simply put, DCG is in a situation that will be difficult to get out of cleanly. Luckily for the business trio, a close partner steps in to help strategize for their next big steps.

Genesis Crypto Brokerage Sees Help From Gemini To Solve Liquidity Issues

Investors have worried in recent weeks about the health of DCG and its subsidiaries, and many believe it is the next crypto ecosystem to implode. Even though DCG assures investors that it is not in imminent danger, confidence in these projects is rightly at rock bottom thanks to FTX. However, some positive news from Camp Gemini is helping to allay those concerns. The company is trying to ease the pain of the Genesis crypto brokerage and limit further tax damage to DCG.

Gemini and Genesis have a history together. The couple teamed up in 2021 to create the Gemini’s Earn program. The Earn program guarantees its users fixed returns as a reward for staking their assets. Genesis is the company’s primary liquidity partner. Earn has been very popular among Gemini users; but, in November, client assets were frozen in response to the FTX contagion. Genesis does not have the cash to pay for customer redemption requests. In total, he owes Gemini clients $900 million.

A committee of creditors, including Gemini, is working with Genesis to reorganize its business. Thanks to the committee, Genesis should hopefully be able to dig up funds to reimburse customers without drastic losses. A plan for that committee was presented to the DCG on Wednesday by investment firm Houlihan Lokey (NYSE:HLI). He assumes an advisory role on behalf of the creditors’ committee throughout the restructuring process. Houlihan Lokey has worked in these types of advisory roles in the past with companies like Lehman Brothers. DCG and Genesis are expected to respond to the plan at some point this week.

As of the date of publication, Brenden Rearick had (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.

Brenden Rearick is a financial news writer for InvestorPlace’s current market team. It primarily covers digital assets and tech stocks, with a focus on crypto and DeFi regulation.

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