Genesis Begging For $1 Billion
In today's edition of YIYL, (You Invest, You Lose) we take the time to look at another victim of the bitcoin lending frenzy that took over during the last bull run. During the last price run-up, many trading firms were looking for additional bitcoin to go long, and to facilitate this, we saw lending platforms offer attractive rates to try and encourage users to hand over their bitcoin.
Some platforms handled the lending themselves, pretty abysmally as in the case of Celsius and BlockFi, while others used a third party to manage the funds and generate the yield, with many platforms funneling customer funds to Genesis.
During the ball market where trading volumes were booming and no one was looking to redeem their funds, the party went on and people continued to take risk. Even during those times, many of these firms have long since blown gapping holes in their balance sheet but thought there was enough time to make it up.
Then Luna collapsed and we started to trend down taking every leveraged position along with it, and boy has it been dragging some big names down in the process.
You chase yield, you get stuck in left field
Genesis Global Trading has reportedly been telling investors that they may need to file for bankruptcy but is hoping to avoid this by, lol get this raising additional capital, Yes let's throw good money after bad, and if their attempts to raise at least $1 billion in new capital don't succeed, they are calling time on it.
Imagine telling people, I lost 1 billion but if you give me some more money this time I will be responsible with the funds, it's laughable.
The firm revealed its exposure to FTX last week, halting withdrawals from its lending service and acknowledging that its derivatives arm has $175 million in funds locked in the bankrupt exchange.
The Wall Street Journal then reported that Genesis had been seeking a $1 billion emergency loan due to a:
"liquidity crunch due to certain illiquid assets on its balance sheet".
Translated is they had a bunch of shitcoins on their balance sheet and they don't have the bitcoin they claim to have but they can't unroll the shitcoins into bitcoin and stablecoins to meet redemptions because it would tank said shitcoin market.
It can also be seen as we have a bunch of shitcoins in staked contracts and we can't get them out so we need money to cover our arses while we try to unwind the positions we're in now or find buyers to take our staked positions off our hands.
Custodial risk on top of custodial risk
The halting of withdrawals from Genesis's lending business has already had major downstream impacts, as popular partners who relied on them for crypto lending services have curbed their customers.
Gemini and Coinhouse both followed Genesis in suspending withdrawals, as did other firms including Donut and GOPAX have all told customers their funds are locked in the earn programs and they're pretty much out of luck so we will wait to see what happens next.
A Genesis bankruptcy would be a monumental event in crypto, with enormous downstream exposure and would only drive even more fear and selling pressure on the market. This could drag down other miners, other businesses or other traders with positions on and we could see even deeper discounts on bitcoin in the future.
I do think this is a valuable lesson for people who went to chase interest, if you think 2 - 6% is worth having exposure to 1, 2, 3 or 4 custodians who could all go bust then you're not doing the math properly and don't know how to calculate risk.
For those who lost money its unfortunate, but you'll be lucky to get anything above 30 cents on the dollar if anything once this whole mess is cleared out. So make peace with the fact that those positions you had can be marked to zero and move on with your life.
Learn to stack sats non-custodially if you want to play in this game, or rather stand on the sidelines, you'll only be donating your money if you don't
Sources:
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Posted Using LeoFinance Beta
Another one bites the dust.
Posted Using LeoFinance Beta
We're going lower and I in the bear market bitcoin flows to those who should have had it all along
Ahahahhaha, what a big mess this scammer created. Anyways, what's a billion dollars or two among friends? 🤭
Lol I feel like they're all trying to beat one another in how much they can lose, so far I think Do Kwon and SBF seem to be leading that race
It's a really cold world when a lot of new people come to crypto and they don't know who to really follow and how to balance risk.
And you are correct that the people caught up in this mess have to just move on with their life and consider they won't get anything back. The thing they don't realize is that the legal proceedings will likely be 5+ years and the lawyers will pay themselves very handsomely.
One time at the local fair I won a raffle for an Amish butter ball the size of a bowling ball. I was at the back of the crowd so everyone graciously passed it back hand over hand to me. Once the butterball got back to me all I got was a greasy handshake. I still owed state and local taxes for my winnings and still owed a lawyer to record my ownership of the butterball with the county recorder's office. Looking back I wish I would have never even played the game.
And with crypto and bitcoin, the incentive isn't really to expedite proceedings you want to drag it out as long as possible, hoping that the longer it takes the more value you can extract as the dollar price of lets say the recovered bitcoin can pay back users.
Most people who invest in this shit don't care about the bitcoin but the dollar equivalent, they'd be happy to get some cash back so why not drag it out and hope bitcoin appreciates
Look how long the mt gox payout has been taking, bitfinex hack will probably take a few more years even though the funds are recovered, don't think anyone from Quadriga saw their money and I am sure no one from FTX is going to see anything more than 4 cents on the dollar if they are lucky and who knows how long that would take
LOL that's such a terrible story but such a great analogy for how capital moves in this space, everyone wants their piece and the owner is left with the liablities
It is crazy how dragging it out Mt Gox might be able to "make everyone whole" because of the capital appriciation of Bitcoin over time. I think Mark Karpelles might become a Billionaire when the whole thing is over potentially. I'm not sure if that will still happen or not.
The butterball story is a parable as old as time 🤣🤣🤣 Unfortunately that is a lot of people's crypto experience.