Genesis Collapse Prediction and Crypto Lending Risks Explained

The author predicted the collapse of a billion-dollar company, Genesis, which subsequently went bankrupt. A video detailing this prediction was prepared but not released before the bankruptcy due to an attempt to solicit comments from the company. The author had emailed Genesis, alleging insolvency and stating an intention to publish a story within 24 hours. Genesis responded to its clients, not the author, admitting to financial difficulties shortly after. The author acknowledges a bias in perceiving this as Genesis front-running the story, though objectively, it could be a coincidence given that others were also discussing the company's issues.

Despite the video's delayed release, the author had warned followers on Twitter five days prior to withdraw funds from Gemini Earn, which later paused withdrawals due to Genesis's situation. The author presents the unedited video from the previous day as a "time capsule" to highlight the red flags that were apparent before the collapse.

The Fallout of FTX and Genesis's Predicament

The video, originally titled "The Fallout of FTX," discusses the widespread impact of FTX's collapse, which owes between $10 to $50 billion and could affect up to a million people. The author criticizes FTX's CEO for his seemingly nonchalant attitude despite the suffering caused.

The focus then shifts to the "contagion" effect, where other companies are impacted by FTX's downfall. Examples include BlockFi and Salt Lending, which paused withdrawals due to significant exposure to FTX. The author emphasizes that by the time a company pauses withdrawals, it's often too late for customers.

The video then introduces Genesis, a major crypto lender, as a company for which it might not be too late to warn people. The author clarifies that this is a theory based on available facts and that Genesis's financial health could be better or worse than estimated.

Genesis's Business Model and Exposure

Genesis primarily works with institutions rather than retail traders. However, individuals could still be indirectly exposed. For instance, users of Gemini Earn, which advertises an 8% return on crypto, are effectively trusting Genesis, as Genesis Global Capital is the sole approved borrower of Gemini Earn funds. Genesis Global Capital, a subsidiary of Digital Currency Group (DCG) and an affiliate of Genesis Trading, lends out these funds.

A significant problem arose when Genesis lent billions to Three Arrows Capital (3AC), a hedge fund that collapsed. Genesis was 3AC's largest lender, with a $1.2 billion claim. Although partly collateralized, Genesis faced hundreds of millions in losses. The former CEO, Michael Moro, stated they had "thoughtfully mitigated our losses," which the author interprets as an attempt to downplay the situation. Moro is no longer CEO.

DCG, Genesis's parent company, reportedly assumed the $1.2 billion claim, supposedly leaving Genesis with no outstanding liabilities. However, the author argues that this doesn't mean Genesis recovered the money; it merely shifted the liability to DCG's balance sheet.

The Grayscale Bitcoin Trust Connection

The collateral Genesis received from 3AC included shares in Grayscale Bitcoin Trust (GBTC), another subsidiary of DCG. Selling these GBTC shares would be problematic because GBTC was already trading at a significant discount (40%), and selling a large quantity would further depress its value, harming DCG's other business. This situation is similar to what led to 3AC's liquidation.

Evidence from Grayscale's 10Q SEC filing shows that DCG had been purchasing GBTC shares, spending $771.8 million between March 2021 and September 2022. This suggests that Genesis and DCG were holding onto illiquid GBTC shares, hoping for future price appreciation, rather than selling them at a loss.

FTX/Alameda Exposure and Shifting Narratives

The author theorizes that Genesis and DCG were already in a precarious financial position before the FTX/Alameda collapse.

On November 8th, Genesis stated they had "no material net credit exposure" to FTX. The next day, they reported a $7 million loss from hedging and selling collateral related to Alameda, still insisting their ability to serve clients was unaffected. A day later, they revised this, admitting to $175 million in "locked funds" in their FTX trading account, yet again claiming it was not "material to our business."

The following day, DCG announced a $140 million capital infusion into Genesis. The author questions why such an infusion was necessary if the $175 million loss was immaterial, and why the infusion was less than the reported loss. This leads to the speculation that DCG itself might not be liquid, and Genesis's financial hole is deeper than publicly admitted.

Discrepancies and Lack of Transparency

The author highlights Genesis's statements regarding their exposure to FTT (FTX's token) and other centralized exchange tokens, which they claimed was "not material." However, using Arkham Intelligence, the author found that Genesis had significant FTT holdings and had been actively receiving hundreds of millions of dollars in FTT from Alameda as recently as a month prior, presumably for loans. Genesis was also observed sending large amounts of FTT to Binance a week before the video was made, suggesting they were selling.

The author concludes that Genesis was either lying or being disingenuous about their FTT exposure. Furthermore, Genesis's claim of "no ongoing lending relationship" with FTX and Alameda is dismissed as a "technical truth" that obscures past dealings.

The author attempted to contact Genesis Global, Genesis Trading, and DCG for comment but received no response. The video concludes with a warning to viewers to be cautious and not blindly trust companies' claims of no exposure to FTX or Alameda, urging them to verify information for themselves.