Notes 11/23: DCG and Genesis, An Irrepressible CEO, and Huobi’s Mystery

The Digital Currency Group (DCG), a crypto conglomerate with interests in media, trading, and lending, is estimating a 20 percent decline in its revenue to $800 million this year due to the crypto contagion, according to a report in the Wall Street Journal.

DCG owns Genesis Global Capital, a lending firm, that is supposed to be in talks for an emergency loan of $1 billion to stave off a potential bankruptcy. The company owes Genesis around $557 million that is due in May 2023 and has a $1.1 billion promissory note due 2032, owing to the latter’s exposure to the Three Arrows Capital debacle earlier this year. Details on the terms of the loans, as usual, were not available.

A Loan Due and An Investment    

DCG is regarded as a pioneer in crypto and has made numerous investments in the industry. “DCG will continue to be a leading builder of the industry and we are committed to our long-term mission of accelerating the development of a better financial system,” the company’s CEO Barry Silbert wrote to investors.

According to Crunchbase, DCG’s last two seed round investments were related to the energy industry. Blockchain-based startup Anode Labs develops technology solutions for the energy industry and React Network is one of its projects. Both raised funding last week from DCG, meaning the New York-based company is pedaling ahead on its investments despite the crypto winter. It helps, of course, that it is dealing with fiat currency or real money in this case and not tokens.  

Another interesting nugget from Crunchbase is DCG’s infusion of $140 million into Genesis on Nov. 11, around the time of the news about FTX bankruptcy. The investment is classified as a venture round. So, even as it owes hundreds of millions of dollars to the lending firm, DCG has also put money into Genesis.  

The complex and incestuous dynamics of this relationship are par for the course in crypto. But they should hardly surprise industry’s observers.

If anything, it is further proof of the limited ecosystem that is crypto. For all its talk of millions and billions of dollars circulating around in the form of trading volume for worthless tokens and airy market caps, crypto is an extremely small industry with few players who are simply passing money around among themselves.

Presenting: The Irrepressible SBF

Sam Bankman-Fried (SBF), the disgraced and cherubic-faced CEO of FTX, has become a poster boy of such dynamics. Given all the negative press he has received in recent times, one would think that he would keep off his Twitter feed. But he refuses to fade into the background even as bankruptcy proceedings for his embattled exchange yesterday revealed more potential losses running into millions of dollars.

After a dramatic public display of contrition on Twitter earlier, SBF is supposed to have repeated the performance in an email to former employees of his exchange yesterday. In the email, he wrote that the company’s collateral, held in exchange for a loan running into billions of dollars to sister company Alameda Research, shrank from $60 billion to $9 billion without his knowledge. The numbers are not surprising, but his words are gold.

He claims to not “have full data access right now to get precise answers.” He also says he did not foresee “the decline in margin position.” Perhaps, he was sleeping a bit too much on his bean bag.

The Mystery of Huobi

Crypto is an industry rife with mystery and unanswerable questions. Who trades the asset class? Where are all the crazy retail investors supposed to power the surge in its prices? What moves Bitcoin price? Why does GBTC trade at a discount? Where is Do Kwon? Where is Sam Bankman-Fried? Who is the CEO of Tether? And when shall we get to see the stablecoin’s reserves…and so on.  

Add the ownership of Huobi to that list. A Bloomberg story yesterday raises questions about Huobi’s current owners. No one seems to know who they are. The Chinese crypto exchange was once a powerhouse in global crypto markets and ranked among the top five exchanges by trading volume. It has since fallen by the wayside and now ranks a lowly 19th, as of this writing, based on data from Coinmarketcap.

Huobi’s co-founder sold his majority holding stake in the exchange to buyout firm About Capital in October. Just who is behind About Capital is a mystery. The website does not divulge much about partners in the firm. TRON founder Justin Sun, who is also a diplomat for Grenada to the World Trade Organization (WTO), is supposed to be a “core investor” in the buyout firm. But he has denied involvement with it.

Not to worry, though. Huobi has sterling company in the crypto ecosystem and the absence of an owner should hardly impede its credibility. An example is Tether. The stablecoin’s ownership structure and its relationship to exchanges in crypto is unclear. Its CEO also seems mostly absent on the job. But that hasn’t stopped it from becoming crypto’s most-traded currency.

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