After facing difficulties raising capital, Genesis, a crypto brokerage firm, reduced its fundraising target to $1 billion to $500m. Lumida Wealth Management CEO Ram Ahluwalia believes that Genesis is not only facing liquidity problems but also insolvency. As a result, Grayscale and DCG are experiencing the contagion effect. Genesis facing liquidity and insolvency
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After facing difficulties raising capital, Genesis, a crypto brokerage firm, reduced its fundraising target to $1 billion to $500m. Lumida Wealth Management CEO Ram Ahluwalia believes that Genesis is not only facing liquidity problems but also insolvency. As a result, Grayscale and DCG are experiencing the contagion effect.
Genesis Faces Liquidity, Insolvency Issues
Ram Ahluwalia claimed that Genesis is likely insolvent following the FTX crisis. He spoke to Unchained on November 22.
“There is a bank run, the bank being Genesis. Genesis, a bank, makes money by issuing loans. They lend to institutions, families, institutions, and high-net-worth individuals but they are not banks. They can’t deposit money so they must borrow and use equity capital. Genesis will have approximately 5% of its assets backed with equity capital, compared to 10% for banks.
The Q3 report shows that Genesis has $2.8 billion in active loans, down from the $10 billion loan outstanding in Q2. This raises concerns about the reduction in loans outstanding due to Genesis issuing fewer loans. Genesis’ primary concern is still access to funding.
To fund these loans, Genesis must fund and issue liabilities to their balance sheets. The Gemini Earn program, Circle Yield and Circle Yield are the main sources of funding. These companies offer clients the opportunity to invest in Genesis secured loans. The loan can then be turned to another party. Genesis is currently facing both liquidity and insolvency issues.
He believes Genesis Lending will file for bankruptcy. Genesis Trading will still be operating. But, problems in raising new capital persist.
Crosshair: DCG and Grayscale
For fresh capital, Genesis also approached Apollo Global Management and Binance. Binance has so far declined to invest in Genesis.
Grayscale and DCG, the parent of Genesis, are currently facing the contagion effect. Some believe that ETHE or GBTC can be dissolved. Genesis has also denied any plans to file bankruptcy.
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