Digital Currency Group (DCG) founder Barry Silbert addressed investors’ concerns about the company’s financial health via a letter following the collapse of the crypto exchange FTX.
More investors lost confidence in DCG after The Wall Street Journal reported that one of its subsidiaries, Genesis, had been trying to raise $1 billion last week. The crypto lender eventually halted some withdrawals. Genesis, however, denied rumors that it would soon file for Chapter 11.
Investors at Grayscale Bitcoin Trust (GBTC), another DCG subsidiary, also showed concerns about the investment company’s stability after the Genesis report. It caused the company to trade close to a 50 percent discount to the BTC spot price. Just two months ago, the discount was close to 30 percent.
This is apparently the letter sent out by Barry. https://t.co/pgS14U5mbg pic.twitter.com/73ePBqTzNY
— DIRTY BUBBLE MEDIA: BARRY! (@MikeBurgersburg) November 22, 2022
Silbert assured investors that the suspension of Genesis’ redemptions and new loan originations on November 16 was caused by “an issue of liquidity and duration mismatch” in its loan book.
He said it did not affect the lender’s custody and trading businesses as they had continued to operate as usual. Despite that, Silbert revealed that Genesis was working with financial and legal advisors to consider various options.
DCG currently owes a little over $2 billion. The company provided Genesis with a $575 million loan, due in May 2023. It also suffered a $1.1 billion loss following the bankruptcy of Three Arrows Capital (3AC), which owed the said amount to Genesis. DCG had pursued “all available remedies to recover assets for the benefit of creditors” due to the 3AC’s bankruptcy.
In addition to the 3AC-linked debt, DCG also owes a “small group” of lenders—led by holding company Eldridge—a $350 million credit facility. Since its inception in 2015, DCG has only received $25 million in primary capital.
Despite the crypto winter, Silber wrote that DCG was projected to earn $800 million in revenue this year. According to Forbes, the DCG founder is currently worth $2 billion.
In his letter, Silbert also assured investors that the crypto and blockchain technology still has potential in the next decades, saying that DCG wanted to “remain at the forefront.” He also relayed his belief that the crypto community could pass the crypto winter.
“We have weathered previous crypto winters and while this one may feel more severe, collectively we will come out of it stronger,” he wrote.
Silbert is one of the crypto company leaders coming forward to assure investors who were concerned that they would do the same bank-run stunt as FTX. Binance, Coinbase and Crypto.com have also released public statements, assuring the security of client assets.
Investors’ distrust
FTX's bankruptcy has led to widespread distrust in many crypto companies. CoinShares chief strategy officer James Butterfill said 75 percent of total inflows by institutional investors last week were placed in short investments, meaning that most institutional investors bet a decline in crypto prices.
The distrust is also reflected in the traditional finance market, as Coinbase’s shares hit an all-time low on November 21. Google Finance reported that the exchange’s shares tumbled 8.9 percent to $41 per unit. Since it went public in April 2021, the crypto exchange’s stock price had gone down nearly 88 percent.
FTX announced bankruptcy earlier this month after facing a liquidity crunch. Before its collapse, Alameda Research, its sister company, faced scrutiny due to an unhealthy balance sheet. Its collateral largely consisted of FTX’s native token, FTT.
A large number of FTX investors then proceeded to withdraw their assets for fear of a price drop, especially after Binance CEO Changpeng Zhao announced plans to sell all of its FTT tokens. The surge of withdrawal requests unveiled that FTX did not have enough liquidity.