Barry Silbert, the founder of cryptocurrency conglomerate Digital Currency Group, has joined a growing list of industry leaders in trying to calm investor nerves following FTX’s sudden collapse.
In a note to shareholders on Tuesday, Silbert addressed all the “noise” about the financial health of DCG’s subsidiaries, which include trading company Genesis, Grayscale Investments and mining company Foundry.
Ever since FTX’s swift sell-off two weeks ago, investors have worried about a crypto contagion affecting all corners of the industry. Lenders have stopped lending, withdrawals have been more difficult and unregulated, little-understood tokens have lost value. The main cryptocurrencies bitcoins Y etherthey have also continued their year-long decline.
Silbert, an early bitcoin evangelist who founded DCG in 2015, said that despite the crypto winter, the overall company is on track to generate $800 million in revenue this year thanks to $25 million raised in primary capital since the start. beginning. Forbes estimates Silbert’s net worth at $2 billion.
“We have weathered previous crypto winters,” Silbert wrote, adding that “while this one may feel more severe, we will collectively come out of it stronger.”
Coinbase, Binance, and Crypto.com have also done their best to assuage client concerns and prevent an FTX-like run on client deposits. Both expressed surprise at FTX’s apparent deception of investors and clients and stressed that clients’ assets are safe.
That’s all with the knowledge that FTX and founder Sam Bankman-Fried betrayed the trust of an industry already in the midst of a brutal year of losses. Bankman-Fried said his company’s assets were “fine” two days before he was desperate for a bailout due to a liquidity crisis.
For DCG specifically, investor confidence took a hit last week, when the Wall Street Journal reported that Genesis had been trying to raise $1 billion from investors before finally halting some withdrawals. There were reports that Genesis would soon file for bankruptcy, which the company publicly refuted.
Fear spread to the Grayscale Bitcoin Trust, known for its ticker GBTC, which allows investors to access bitcoin through a more traditional value. GBTC is currently trading at a 42% discount to bitcoin, up from a discount of close to 30% two months ago.
Regarding Genesis’ lending business, Silbert said in the letter that the suspension of redemptions and new loan origination on November 16 was “a liquidity and duration mismatch issue” in the loan book. These issues, he said, “had no impact” on Genesis’s custody or spot trading and derivatives businesses, which “continue to operate as usual.”
He acknowledged that Genesis has retained financial and legal advisers as the firm considers its options.
DCG’s debts amount to just over $2 billion. The company loaned Genesis approximately $575 million, priced at “prevailing market interest rates,” due May 2023. It also absorbed $1.1 billion of debt that bankrupt crypto hedge fund Three Arrows Capital owed Genesis.
With Three Arrows in bankruptcy, DCG “is seeking all available remedies to recover assets for the benefit of creditors,” Silbert wrote. DCG’s only other debt is a $350 million line of credit from “a small group of lenders led by Eldridge.”
Read Silbert’s full letter below:
There has been a lot of noise over the past week and I want to get in touch directly to clarify where we stand on DCG.
Most of you know the situation at Genesis, but to recap: Genesis Global Capital, the lending business of Genesis, temporarily suspended redemptions and new loan origination on Wednesday, November 16 after market turmoil prompted loan requests. unprecedented withdrawal. This is a liquidity and duration mismatch problem in the Genesis lending book. Importantly, these issues have no impact on Genesis’s custody or spot trading and derivatives businesses, which continue to operate as usual. Genesis leadership and its board have decided to engage financial and legal advisers and the firm is exploring all possible options amid the fallout from the FTX implosion.
In recent days, there has been talk about intercompany lending between Genesis Global Capital and DCG. For those who don’t know, in the ordinary course of business, DCG has borrowed money from Genesis Global Capital along the same lines as hundreds of other cryptocurrency investment firms. These loans were always structured at arm’s length and quoted at prevailing market interest rates. DCG currently has a liability with Genesis Global Capital of ~$575 million, maturing in May 2023. These loans were used to fund investment opportunities and repurchase DCG shares from non-employee shareholders in secondary transactions previously highlighted in quarterly updates. for shareholders. And to this day, I have never sold a portion of my DCG shares.
You may also recall that there is a $1.1B promissory note due June 2032. As we shared in our previous letter to shareholders in August 2022, DCG stepped in and took over certain Genesis liabilities related to Three Arrows Capital’s default. As stated in August, as these are now DCG’s liabilities, DCG is participating in the Three Arrows Capital liquidation proceedings in the Creditors’ Committee and is seeking all available resources to recover assets for the benefit of creditors. Other than the Genesis Global Capital intercompany loans due May 2023 and the long-term note, DCG’s only debt is a $350 million credit line from a small group of lenders led by Eldridge.
Taking a step back, let me be very clear: DCG will continue to be a leading builder of the industry, and we are committed to our long-term mission of accelerating the development of a better financial system. We have made it through previous crypto winters and while this one may feel more severe, we will collectively come out stronger. DCG has only raised $25 million in Tier 1 capital and we are planning to generate $800 million in revenue this year.
I bought my first bitcoin a decade ago in 2012 and made the decision to commit to this industry for the long term. In 2013, we founded the first BTC trading company, Genesis, and the first BTC fund, which became Grayscale, now the world’s largest digital currency asset manager. Foundry runs the world’s largest bitcoin mining pool and is building the decentralized infrastructure of tomorrow. CoinDesk is the industry’s leading media, data and events company and has done a phenomenal job covering this crypto winter. Luno is one of the most popular crypto wallets in the world and is an industry leader in emerging markets. TradeBlock is building a transparent institutional trading platform, and as the newest subsidiary, HQ is establishing a life and wealth management platform for digital asset entrepreneurs. Each of these subsidiaries are independent businesses that are independently managed and operate as usual. Lastly, with a portfolio of over 200 companies and funds, we are often first check for the best founders in the industry.
We appreciate the words of encouragement and support, along with the offers to invest in DCG. We will let you know if we decide to do a round of funding.
Despite the difficult conditions in the industry, I am as excited as ever about the potential of cryptocurrency and blockchain technology in the coming decades and DCG is determined to remain at the forefront.
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