Cryptocurrency broker Genesis warns of bankruptcy due to liquidity crunch

Digital assets platform is seeking at least $1bn in new capital

Reverberations from the collapse of Sam Bankman-Fried’s empire continue to spread through financial markets, threatening the future of cryptocurrency lenders. Bloomberg
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Digital assets broker Genesis is struggling to raise cash for its lending unit and has warned potential investors that it may need to file for bankruptcy if its efforts fail.

Genesis has spent the past several days seeking at least $1 billion in new capital, according to sources. That included talks over a potential investment from cryptocurrency exchange Binance, they said, but funding has so far failed to materialise.

The rush for funding was precipitated by a liquidity crunch at the lender after the sudden collapse of FTX, one of the world’s largest cryptocurrency exchanges.

Genesis halted redemptions shortly after revealing on November 10 that it had $175 million locked in an FTX trading account.

“We have no plans to file bankruptcy imminently,” a representative for Genesis said. “Our goal is to resolve the current situation consensually without the need for any bankruptcy filing. Genesis continues to have constructive conversations with creditors.”

A representative for Binance declined to comment.

Other platforms are facing their own struggles as redemption requests roll in after FTX’s bankruptcy filing shook the cryptocurrency sector and left investors on edge about the risk of contagion.

Genesis is a counterparty to many in the digital asset space and is closely watched as a gauge of the industry’s strength.

It is among the cryptocurrency lenders under acute strain after a prolonged rout in virtual coin prices amid numerous high-profile blow-ups.

The difficulties at Genesis have also buffeted the billionaire Winklevoss twins, Tyler and Cameron, owners of the Gemini cryptocurrency exchange.

In response to Genesis suspending withdrawals, Gemini halted redemptions from its Earn product. That left in limbo a programme that, according to a source, has $700 million in customer funds tied up in it.

Updated: November 22, 2022, 6:58 AM