[SERIOUS] An explainer on how messy the Genesis bankruptcy can get

Genesis just filed for bankruptcy today. Some people may not know who they are, some might. But as usual, the situation is much more complicated than on the surface and I'll break that down here.

Firstly, Genesis is a subsidiary of DCG, and is the sister company of Grayscale, who is also a DCG subsidiary. No, Genesis 'lost' 175 million from FTX and received only a 125 million via a equity infusion from DCG. For reference, DCG was valued at $10 Billion in 2021 when they sold off shares to Softbank. One would have thought that such a large company would easily be able to cover that relatively tiny sum. Thus, DCG falling short is strong indicator of deep financial troubles.

So we have parent company DCG and its subsidiary Genesis is deep financial trouble. In addition, Grayscale is also not performing very well it's flagship Bitcoin Trust as it currently trades at a 40% discount to NAV. What this basically means is that Grayscale the amount buyers in the Trust is very low compared to the amount of shares the Trust holds. Further, Genesis acts as the sole authorized participant for Grayscale Funds, meaning they are the only company allowed to buy or sell the Trust's assets. It is very unclear how bankruptcy affects the management of the funds assets.

Now, Grayscale's assets under management amount to $18.7 Billion, of which $13.3 Billion are from the Bitcoin Trust alone. DCG and Grayscale also hold 10% of GBTC shares in particular. Genesis and possibly DCG may be forced to sell off some(or all) of these shares in bankruptcy liquidation and we know they owe at least $3.5 Billion to top 50 creditors alone, and the top two creditors by themselves are owed $1.5 Billion.

Depending on how bad things get, Grayscale may be forced to bail out its sister and/or parent company likely by selling some assets. Uncertainty surrounding DCG, Genesis and by extension Grayscale's funds could lead an exodus of funds out of Grayscale's funds that further drive down Grayscale's profits if they aren't already running at a loss. And then there's Gemini who now seeks on the hook at least reputation-wise, as well as money-wise for the time being, for the Gemini Earn customers losses that were the fault of their Gemini Earn partner Genesis. Gemini is currently suing Genesis for a supposed over $900 million loan regarding said Gemini Earn program.

And as is usual, we don't know how far contagion risks will spread, as Gemini are probably not the only ones hit, just the first to publicly admit it. Genesis have somewhere between roughly $4B and $10B in liabilities so there are bound to be some crypto-tied companies somewhere that are bleeding out right now.

https://grayscale.com/sec

https://grayscale.com/products/

https://www.straitstimes.com/business/inside-the-once-us10-billion-crypto-empire-around-genesis-that-s-suddenly-cracking

https://www.forbes.com/sites/roberthart/2023/01/20/crypto-giant-genesis-files-for-bankruptcy-as-casualties-mount-after-ftx-collapse/?sh=23df6bc91874

https://www.coindesk.com/business/2022/11/11/crypto-investment-firm-dcg-gives-140m-equity-infusion-to-trading-firm-genesis/