“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of reliable financial information as what I’ve seen here.” These are meaningful words shared by the new CEO of FTX, the restructuring expert John J. Ray III, he who had played the same role in the Enron saga in 2001. in the hands of a very small group of inexperienced, unsophisticated individuals and potentially compromised, this situation is unprecedented.”
Unsurprisingly, it is this saga surrounding the FTX exchange failure that has continued to spill the beans and drive the markets over the past week. According to documents filed Saturday in Delaware bankruptcy court, the company said it owed $3.1 billion to its top 50 creditors. FTX’s top ten creditors alone hold more than $100 million each of unsecured debt, according to filings, or more than $1.45 billion total. In this context, apart from the losses of countless investors who have used the platform to trade and store their cryptocurrencies, it is the domino effect that this crisis can always have that creates uncertainty and therefore downward pressure on the markets.
Among these, it is perhaps Genesis that attracts the most attention. Indeed, also in this same report, the third largest creditor is named in the rankings with $174 million owed to it. While not officially named, this figure matches what cryptocurrency lender Genesis revealed 10 days ago that $175 million in funds were locked in its FTX account. Genesis launched the first over-the-counter bitcoin trading desk in 2013, becoming a major player in the industry. However, the latter was greatly affected by the bankruptcy of Capital of the three arrows earlier this year. Last week, after suspending lending services and devoting the weekend to unsuccessful fundraising efforts, Genesis Global Capital hired investment bank Moelis & Company to explore possible options, including possible bankruptcy. . At least that’s what The New York Times reports, with Genesis still publicly stating that it has no such plans.
To properly explain the dreaded domino effect, it must be said that Global capital genesis is a branch of Digital currency groupa company that owns Grayscale Investments, which operates the Grayscale Bitcoin Trust. This financial product has $10.2 billion under management. It should allow for passive exposure to the bitcoin price, but the latter has decoupled from the BTC price over the past year. As a result, the discount for buying a share of GBTC has reached a record high of 43% against the net value of the fund and the bitcoins held. To this end, the founder and CEO of Digital currency groupBarry Silbert, revealed in a note to shareholders that DCG has a debt of about 575 million dollars with Genesis Global Capital, maturing in May 2023. The latter, however, wants to be reassuring on the structure of the companies and on the cascade risk : “Genesis Global Capital is not a counterparty or service provider to any Grayscale product. […] Grayscale products continue to operate as normal and recent events have had no impact on product operations.” However, the perceived risk is clear. Does DCG have enough capital to recapitalize Genesis? If not, the concern is that the company would have to liquidate its GBTC product, which would create a new wave of challenges for a whole range of market participants related to the use of GBTC as collateral.
Major players say, however, these fears are not justified. On Friday, Coinbase Global Inc.’s custodial service ensured the safety of the grayscale digital assets it holds. In a letter published yesterday by Silbert, we learn that DCG expects revenue of $800 million in 2022, down about 20% from last year. He adds about the shareholders that “we will let you know if we decide to proceed with a tour de table. “Let me be crystal clear: DCG will continue to be a leading builder in the industry and we are committed to our long-term mission to accelerate the development of a better financial system,” he wrote. “We have been through previous crypto winters and while this one may seem tougher, we will collectively come out stronger.”
It is in these uncertain times that the best opportunities always emerge. The problem is that this evidence only stands in retrospect. However, some players are undeniably taking this bet. This is notably the case with Ark Invest’s Cathie Wood who added $1.4 million of GBTC to her hedge fund. It must be said that the risk-reward ratio is attractive. Not only is the price of bitcoin down sharply, but this exposure allows for a potential additional profit of over 40% from the GBTC discount to the fund’s net worth. This is the company’s second major GBTC purchase in as many weeks. Ark now owns nearly 6.357 million GBTC shares representing 0.4% of the company’s total investments.
This crypto winter isn’t even cooling El Salvador’s president Nayib Bukele. The country is finally taking a decisive step towards realizing its ambitious “Bitcoin bond” project. Economy Minister Maria Luisa Hayem Brevé presented a bill confirming the government’s plan to raise one billion dollars and invest it in the construction of a “bitcoin city”. Over the past twelve months, the project has been delayed several times. The project is now expected to be approved by Christmas. Whether investors will be there remains to be seen.
If you had funds on the Celsius platform, please note that there is now a deadline for you to apply as a lender. Scammed investors have until January 3 to submit proof of their frozen funds to the defunct cryptocurrency lending firm.
Despite a rebound in the last 24 hours, the cryptocurrency market is having another bearish week. The defensive positioning of Rivemont crypto funds, with more than 50% of assets in cash, will have mitigated the effect of this decline. Technically, it is hoped that the rapid rebound after bitcoin dips below $16,000 can continue to form a “double bottom.” It would take a day to close above $17,300 to realize the full momentum of this bullish signal.
In any case, as the death of bitcoin begins to be heralded again by some media outlets, it is important to remember that this is not the 1d sector crisis. Each time bitcoin has come back stronger. No one doubts at this point that 2022 will be a disastrous year for the mother of cryptocurrencies. However, when you look at this data, when in the past did it make sense to invest in the asset? As we said earlier, however, this evidence holds only in retrospect.
This article is offered by Fonds Rivemont. The Rivemont Crypto Fund is the first and only actively managed crypto fund in Canada. Eligible for RRSP and TFSA. Accredited investors can find out more here.
Disclaimer: This column does not necessarily reflect the opinion of CryptonewsFR and does not constitute investment advice or trading instructions..
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