Notes 1/24: Genesis Bankruptcy Filing

The crypto soap opera of miffed partners and questionable dealings continues with the latest revelations from Genesis’s bankruptcy filing.

The crypto lending firm is claiming that Gemini, the crypto exchange that is one of its biggest creditors, violated terms of the Uniform Commercial Code (UCC) and, therefore, its claim of almost $766 million should be voided altogether.

Genesis gave collateral to Gemini in the form of 30.9 million shares in the Grayscale Bitcoin Trust (GBTC) last August in exchange for its token borrowings under the latter’s Earn program. Gemini informed Genesis on Nov. 7 that it had sold those shares. That’s the same day Genesis stopped withdrawals on its platform.

Look Ma, No Term Sheet

Here’s the kicker. The terms of their borrowings were not documented in a term sheet. Remember we are talking about two of the biggest companies operating in cryptocurrency. Genesis, as I mentioned earlier, is resorting to UCC to make its case that it does not owe money to Gemini.

The transaction’s legality aside, Gemini seems to have simply conducted a bad trade. GBTC had been trading at a discount to its net asset value since the beginning of 2021. Its share price had also been sliding since March 2022.

On August 15, 2022, the day that Genesis claims to have given the collateral of shares to Gemini, GBTC was trading at $15.06. By November, its share price had dropped down to $9.20.    

What “due diligence” did Gemini conduct for this transaction? And what was the rationale behind this transaction? One thing’s for certain, I am not letting the Winklevoss twins manage my money.

An attorney interviewed by online publication Axios says that a claims dispute between the two parties is more likely than not. For investors, if there are any left, in Gemini’s Earn program, that means another long wait.

Genesis Trading is Still Open for Business

Meanwhile, its sister entity Genesis trading is continuing operations as if nothing’s happened. A CoinDesk report last Saturday claimed that it is moving around tokens worth more than $100 million in transactions. Of course, those transfers are of tokens with highly dubious and manipulated value. That is, if they have value at all.

But it seems unlikely that the company will survive the current cataclysm in crypto.  

Genesis trading’s reputation is “in the bin”, Charles Storry, head of growth at a futures platform, told CoinDesk. “Maybe they keep some legacy clients. Maybe. As for introducing new clients, no chance while bankruptcy is in play.” Given the current pace of unraveling in crypto’s tangled web, it is unlikely that they will have any clients left soon.

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