January 31, 2023

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Cryptocurrency companies are dropping like flies: – Extremely negative consequences for reputation

Crypto lending platform Genesis is the latest crypto project to file for bankruptcy in US courts. With 100,000 creditors and debt obligations of up to $11 billion, that was the hook on the door of Genesis, which on Friday night sought bankruptcy protection in New York, according to a filing. CNBC.

– I think this is the last card to fall into the House of Cards, says analyst Vetle Lunde at Arcane Crypto.

But behind the last card lie billions scattered in a long string of bankruptcies.

In less than a year, five major crypto companies have capitulated – with debt obligations running a whopping billions.

– It’s gigantic

Based on amounts reported in legal documents in the international media, Voyager Digital, Blockfi, FTX, Celsius, and Genesis have debt obligations ranging from $19 billion to $87 billion. This corresponds to up to NOK 850 billion.

At the same time, companies reported roughly the same in terms of assets. But it’s not a given that all you have to do is push it all in, according to Lund.

Parts of it are completely liquid, and other parts are less liquid. Not everyone can get their money back, or it can be assumed that everyone gets some of their money back, he says.

The analyst says very bad B2B loans have been given out without good risk management and communication.

The Genesis bankruptcy is in many ways a full circle from where credit began to grow at the start of the bull market, and was the primary component behind loan financing of Grayscale-related strategies that ultimately became very uncomfortable for all parties involved, says Lund.

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Grayscale is a lead cryptocurrency manager and is owned by the Digital Currency Group (DCG). DCG also owns Genesis. Lunde says it’s uncertain how the bankruptcy will affect DCG. Its affiliate, Grayscale, owns 3.3 percent of all bitcoin and 2.5 percent of all ethereum in circulation.

– It’s gigantic. If the bankruptcy had consequences for DCG and thus Grayscale, and those funds had to be closed, that would mean massive selling pressure for bitcoin, ethereum, and other cryptocurrencies, he says.

Found 50 billion

The largest cryptocurrency bankruptcy occurred last fall when the FTX exchange collapsed and hundreds of millions of dollars disappeared.

The lawyers and advisors who run FTX have now found more than $5 billion in liquid assets. This corresponds to approximately NOK 50 billion.

– I feel we are at the peak of negativity and this is the end of the real sad credit crunch in cryptocurrency. This had very negative consequences for the reputation and seriousness of the industry, and brought to light many problems. Institutional players will be wary about getting involved in the market going forward, and it will take time to build new confidence. However, it is encouraging that bitcoin has regained its pre-FTX crash levels, and the market seems to care less about a Genesis bankruptcy, says Viettel Lundy.

When the FTX system started to shake in early November last year, the cryptocurrency market started to falter. In just four days, the value of the world’s largest cryptocurrency has fallen by 25 percent. Since the new year, prices have risen again and are now at pre-bankruptcy levels.

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Lunde in Arcane believes that it will be difficult to regulate the cryptocurrency lending market.

What should definitely be regulated is something that restricts loan actors from being able to market themselves to private clients. He says that interest in cryptocurrency is not without risk, and everyone should learn that by now.

The analyst has clear advice for investors.

Encryption is something that should not be trusted. You have to remove the broker, but every time you use the exchange, you give your trust to the exchange. Distributing your funds to different exchanges, or even better, holding cryptocurrencies yourself is the way to avoid ending up in a bankrupt province.(Conditions)Copyright Dagens Næringsliv AS and/or our suppliers. We’d like you to share our statuses using links that lead directly to our pages. Reproduction or other use of all or part of the Content may be made only with written permission or as permitted by law. For additional terms look here.