Crypto brokerage firm Genesis reduced its fundraising target from $1 billion to $500 million after facing difficulty raising fresh capital. Ram Ahluwalia, CEO of Lumida Wealth Management, believes Genesis is not just facing liquidity issues, but also insolvency. DCG and Grayscale are facing the contagion effect as a result of Genesis.
Genesis Facing Liquidity and Insolvency Issues
During an Unchained interview on November 22, Ram Ahluwalia claims Genesis is likely insolvent, as it’s illiquid and faces trouble raising fresh capital following the FTX crisis.
“There’s a run on the bank, the bank here being Genesis. Genesis as a bank makes money by originating loans. They lend to counterparties, institutions, family offices, and high net-worth individuals, but they’re not actually a bank. So they can’t fund with deposits, they have to fund by borrowing and using equity capital. Genesis will have around 5% of its assets backed by equity capital, as compared to banks’ 10%.”
According to the Q3 report, Genesis has active loans of $2.8 billion outstanding, down from $10 billion loan outstanding in Q2. It raises concerns over reduction in loans outstanding as a result of Genesis issued fewer loans. However, less access to funding remains the primary issue for Genesis.
Genesis has to fund and issue liabilities on their balance sheets to fund these loans. Gemini Earn program and Circle Yield are the two primary sources of funding. Clients of these companies are offered access to invest in Genesis secured loans and then users turn the loan to another party. Therefore, Genesis is facing both liquidity issue and also insolvency issue.
He believes Genesis Lending will surely file for bankruptcy, whereas Genesis Trading will continue to operate. However, troubles in raising fresh capital still persists.
DCG and Grayscale in Crosshair
Genesis also approached players like Binance and Apollo Global Management for fresh capital. However, Binance has denied from invest in Genesis at this point.
Genesis’ parent DCG and Grayscale are facing the contagion effect, with some believing that GBTC or ETHE can be dissolved. Moreover, Genesis has denied imminent plans to file for bankruptcy.
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