The fragile connections within billionaire Barry Silbert’s company were highlighted when crypto firm Digital Currency Group borrowed money from its faltering Genesis branch to invest in another subsidiary’s products.
DCG’s Statement
According to DCG’s statement, it used some of that money to purchase an investment product from Grayscale, another one of its firms, which runs a US-listed trust that monitors the price of bitcoin. Silbert revealed that DCG had borrowed $575 million from its broker Genesis, who is now seeking money to avoid bankruptcy in the middle of a widespread issue that is getting worse.
Latest Revelation
Despite having a lower public profile than exchanges like FTX or Binance, DCG is one of the biggest and first investors in the cryptocurrency market, which is still recovering from Sam Bankman-recent Fried’s FTX bankruptcy. This most recent information emphasizes the connections within Silbert’s organization, valued at $10 billion by investors last year, including SoftBank, Singapore’s GIC sovereign wealth fund, and CapitalG, Google’s venture arm.
Withdrawals from Genesis Trading’s lending unit were stopped last week due to “unprecedented market turmoil,” The company has since been looking for ways to raise money. Although it claimed this week that it was not in imminent danger of bankruptcy, Moelis investment bankers have before been hired to assist in exploring “all possible options.”
DCG’s Stance on the Investments
According to US securities filings, DCG has contributed $772 million since March 2021 to the open market purchase of Grayscale Bitcoin Trust (GBTC) units. DCG claims that some of its acquisitions were paid for with bitcoin that it had lent to Genesis Trading and US dollars.
In a presentation to investors, Silbert claimed that DCG had borrowed $575 million from Genesis “on an arm’s length basis” to finance unnamed “investment prospects” and repurchase shares of DCG from non-employee shareholders. DCG said that $300 million had been used for share repurchases, and “some” of the money borrowed from Genesis had been used to pay for the GBTC acquisitions. DCG refused to say whether resources like GBTC were utilized to pay for the Genesis loan.
GBTC Swept in FTX Storm
The price of the Grayscale trust shares that DCG purchased has significantly decreased. The units ended at $9.23 on Wednesday, compared to a weighted average price of $40 for the purchases made since March 2021. DCG claimed that its GBTC purchases were “market-neutral” because of its other counterbalancing positions.
Until October of this year, Genesis was the only issuing agent available to traders who sought to deposit bitcoin in the Grayscale trust in exchange for the more easily traded GBTC units. The DCG-owned Grayscale receives an annual 2% management fee from the Grayscale trust.
Recent Developments
In 2021, GBTC traded at a premium to the price of the underlying bitcoin asset, which allowed traders to make quick returns from their investments. The need for bitcoin wrapped in a conventional banking system was why the premium had been present.
Currently, the price of GBTC is sharply discounted by 39% from that of bitcoin. The Grayscale trust has frequently been denied permission by the US Securities and Exchange Commission to become an exchange-traded fund structure accessible to regular investors.
Due to GBTC’s popularity and the simplicity of trading the units, it was frequently used as collateral in cryptocurrency lending, including by Genesis.
Conclusion
After several high-profile shocks to the sector this year, Silbert’s holding business has invested money in Genesis. One occurred after Genesis lost $1.1 billion on loan to the defunct hedge fund Three Arrows Capital, which used GBTC as collateral. Silbert stated on Tuesday that because of taking on Genesis’ liabilities, DCG now owes Genesis $1.1 billion.
