DCG plans to offer Genesis creditors equity through bankruptcy package - report

© Reuters

By Geoffrey Smith 

Investing.com -- Barry Silbert is offering a stake in his digital currency empire to the creditors of its stricken lending unit Genesis, according to a report in The Block.

Genesis, which suspended client withdrawals in November after the collapse of crypto exchange FTX, is preparing to file for chapter 11 bankruptcy as early as this week, according to Bloomberg. That would confirm what has been increasingly apparent over recent weeks - that Genesis' catastrophic losses during the 2022 crypto meltdown had rendered it insolvent.

Under a resolution package proposed by Silbert, its creditors would receive cash payments and equity in Silbert's Digital Currencies Group after a grace period lasting up to two years, The Block reported.

It's unclear whether that would be enough to satisfy Genesis' highest profile creditors, crypto pioneers Cameron and Tyler Winklevoss. The twin owners of investment platform Gemini have loudly complained in recent weeks that the 340,000 customers of its own lending program Earn are owed $900 million by Genesis. Gemini itself may be on the hook to make those customers whole if it can't disgorge the money from Genesis.

According to an open letter published last week by Cameron Winklevoss, Genesis had lost around half of the $2.4B it lent to hedge fund 3 Arrows Capital when the latter collapsed last spring, a victim of the Terra/Luna stablecoin implosion. According to Winklevoss, 3AC had been recycling much of that money into DCG's Grayscale Bitcoin Trust, one of only very few registered ETFs giving investors indirect access to Bitcoin. That ETF's value tumbled last year as Bitcoin lost over two-thirds of its value, while its discount to the net asset value of its holdings widened sharply, an indication of skepticism about the quality of the trust's asset backing.