“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of reliable financial information as what I have seen here.” These are words of heavy meaning shared by FTX’s new CEO, restructuring expert John J. Ray III, who had played the same role in Enron’s 2001 saga. concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.”
Unsurprisingly, it is this saga surrounding the bankruptcy of the FTX exchange that has continued to spill the beans and drive the markets over the past week. According to documents filed Saturday in Delaware bankruptcy court, the company said it owed $3.1 billion to its top 50 creditors. FTX’s top ten creditors alone each have more than $100 million in unsecured debt, according to filings, or more than $1.45 billion in total. In this context, apart from the losses of countless investors who used the platform to exchange and store their cryptocurrencies, it is the knock-on effect that this crisis can always have that creates uncertainty and therefore downward pressure on the markets.
Among these, it is possibly Genesis that particularly attracts attention. Indeed, always the same report, the third largest creditor is named in the classification with $174 million owed to him. While not officially named, this figure is consistent with what cryptocurrency lender Genesis revealed 10 days ago that $175 million in funds had been locked into its FTX account. Genesis launched the first over-the-counter bitcoin trading desk in 2013 and became one of the major players in the industry. However, the latter was strongly affected by the bankruptcy of Three Arrows Capital earlier this year. Last week, after Genesis Global Capital suspended lending and spent the weekend on failed fundraising efforts, Genesis Global Capital hired investment bank Moelis & Company to explore possible options, including possible bankruptcy. . At least that’s what the New York Times reports, with Genesis still publicly claiming no such plans.
To properly explain the dreaded domino effect, that should be stated Genesis global capital is a branch of Digital currency groupa company that owns it Grayscale investments, which operates the Grayscale Bitcoin Trust. This financial product has $10.2 billion under management. Believed to allow passive exposure to bitcoin’s price, the latter has instead decoupled from BTC’s price over the past year. As a result, the discount to buy a share of GBTC reached an all-time high of 43% to the fund’s net worth and bitcoins held. To this end, the founder and CEO of Digital currency groupBarry Silbert revealed in a note to shareholders that DCG has approximately $575 million in debt to Genesis Global Capital, due in May 2023. However, the latter wants to reassure about the structure of the companies and the risk of cascading: “Genesis Global Capital is not a counterparty or service provider for any Grayscale product. […] Grayscale products will continue to operate as normal and recent events have not affected the operation of the product.” However, the perceived risk is clear. Does DCG have sufficient capital to recapitalize Genesis? If not, there are fears that the company will lose its GBTC product will have to liquidate, which would create a new wave of challenges for a whole range of market participants regarding the use of GBTC as collateral.
However, the protagonists say that these fears are not justified. On Friday, the Coinbase Global Inc. committed to the safety of the grayscale digital assets it owns. In a letter published yesterday by Silbert, we read that DCG forecasts revenue of $800 million in 2022, down about 20% from last year. With regard to shareholders, he adds that “we will let you know if we decide to proceed with a tour de table. “Let me be crystal clear: DCG will continue to be a leading builder in the industry and we are committed to our long-term mission to accelerate the development of a better financial system,” he wrote. “We have been through previous crypto winters and while this one may seem harsher, collectively we will emerge stronger.”
The best opportunities always arise in these periods of uncertainty. The problem is that this evidence only holds up in hindsight. Nevertheless, some players undeniably take this gamble. This is particularly the case of Ark Invest’s Cathie Wood who added $1.4 million worth of GBTC to her hedge fund. It must be said that the risk-reward ratio is enticing. Not only is bitcoin’s price at a clear bottom, but this exposure creates an additional potential gain of more than 40% of the GBTC discount over the fund’s net worth. This is the company’s second major purchase of GBTC in as many weeks. Ark now owns nearly 6.357 million GBTC shares representing 0.4% of the company’s total investments.
This crypto winter does not cool down the president of El Salvador Nayib Bukele either. The country is finally taking a decisive step towards realizing its ambitious “Bitcoin bond” project. Economy Minister Maria Luisa Hayem Brevé presented a bill confirming the government’s plan to raise and invest a billion dollars in building a “bitcoin city”. The project has been delayed several times over the past twelve months. The project is now expected to be approved before Christmas. It remains to be seen whether there will be investors.
If you had money on the Celsius platform, please note that there is now a deadline to file your claim as a creditor. The scammed investors have until January 3 to submit proof of their frozen assets to the defunct crypto lending company.
Despite an uptick in the past 24 hours, the cryptocurrency market is going through another bearish week. The defensive positioning of Rivemont crypto funds, with more than 50% of assets in cash, will have mitigated the effect of this decline. Technically, it is hoped that the rapid rebound after bitcoin fell below $16,000 could continue to form a “double bottom”. It would take a day to close above $17,300 for the full momentum of this bullish signal to be realized.
In any case, as the death of bitcoin is once again announced by some media, it is important to remember that this is not the first.D industry crisis. Each time, bitcoin has come back stronger. No one currently doubts that 2022 will be a disaster year for the mother of cryptocurrencies. However, looking at this data, when has it made sense to invest in the asset in the past? However, as we said earlier, this evidence only holds up in hindsight.
This article is brought to you by Fonds Rivemont. The Rivemont crypto fund is the first and only actively managed cryptocurrency fund in Canada. RRSP and TFSA are eligible. Accredited investors can learn more here.
Disclaimer: This column does not necessarily represent the views of CryptonewsFR and does not constitute investment advice or trading instructions..
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