The last domino
Friday January 6, 2023 - Issue # 34
Happy New Year! Thank you so much for all of your support and feedback last year. The Satstreet team and I are wishing you all a year filled with great health, wealth and happiness.
Now to see whether or not I can outsource my writings to this new AI that everyone is talking about…
*Enters into ChatGPT* Write a short newsletter on why 2023 might be great for Bitcoin
Pretty good…I mean, aside from the halving event, which will happen in May 2024 instead of this year as the AI suggested, this ChatGPT thing is neat, but I’m not sure I can totally rely on it…yet.
Whilst I’m wishing Bitcoin a prosperous 2023, there’s no doubt that it will be a rocky one (yay). Aside from the macro headwinds (high interest rates, war, etc.), which I believe have mostly been considered in terms of price action, the next few months will be interesting as we watch how the dust settles for one of the biggest players in the crypto space, Digital Currency Group (DCG), as they navigate a crisis.
In short, DCG, the preeminent venture capital company in crypto led by Barry Silbert, owns Genesis, a leading lending desk in crypto markets. Genesis took on substantial losses in the summer of ‘22 from Three Arrows Capital ($1.2 bn) and other borrowers who went bankrupt. As the rumours of Genesis’s solvency started to fly, it appeared that they were bailed out by parent company DCG. Then FTX happened.
The blow to Genesis’s derivatives business was reported to be in the 9-figure range (eh, what’s 9-figs between friends…better than 10, right). In the wake of FTX’s demise, Genesis suspended customer redemptions last month and told clients that they needed time to resolve the financial crisis plaguing its lending business. One of Genesis’s largest clients is the Winklevii’s exchange, Gemini. Unfortunately, Gemini is not just a large institution, but one that has hundreds of thousands of customers caught up in this mess through Gemini’s Earn program, which is essentially a front-end application for Genesis’s lending business. Regular folks like a “single mom who lent her son’s education money to you” and a “father who lent his son’s bar mitzvah money to you” — as per Cameron Winklevoss’s open letter to Barry Silbert last week — are wondering if their collective $900m will ever be made available to them.
Sad. From the letter above you can see that Cameron Winklevoss gave Barry till January 8th to commit to working this out, but as the days passed by, rumours were flying around about the likelihood of a positive outcome. This Wednesday, Genesis told their clients that they needed more time. A day later (yesterday), Genesis announced that it cut 30% of its staff and is evaluating its options, including a potential Chapter 11 bankruptcy filing. Also yesterday, DCG closed its more than $3.5bn wealth management division called HQ, citing the state of the broader economic environment and prolonged crypto winter as the reason.
It appears that DCG is making every move it can to increase its chances of survival. If they can’t pull it off, it only makes sense that we could see further negative ripple effects throughout the industry, as there are a number of companies that have significant exposure to Genesis.
Let’s get it over with! I’m not even sure if a positive or negative outcome will make a difference to crypto market prices since it’s hard to believe that there is a massive amount of coin sitting in these companies available to sell. On the venture side, however, we could see fire sales in the secondary market as DCG and other implicated investors seek liquidity.
Ladies and gentlemen, I’m feeling pretty confident that we’re close to the end of this madness, and I’m very excited at the thought of starting fresh.
I’m looking forward to getting back to things like this:
Good or bad, this year will no doubt be interesting, and that is something to be excited about. I’m looking forward to finding out what’s around the corner with you all as we go.
Have a nice weekend.
(Any views expressed in the below are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)