The Ghost of Crypto Winter Past isn’t that far behind. An unusually high number of blockchain companies went broke in 2022, and we’re still suffering the aftershocks. The next victims could be the huge crypto conglomerate Digital Currency Group (DCG), and the exchanges Huobi and Binance.
Selon rapports récents, DCG may be facing a US investigation over internal transfers. The Department of Justice of New York (EDNY) and the Securities and Exchange Commission (SEC) would be already checking their money flows and documents. They’d also be doing internal interviews to figure out the real liquidity state of the company.
So far, they haven’t been accused of wrongdoing, but that’s just the tip of the iceberg. Earlier this month, Cameron Winklevoss (Gemini co-founder), accused Barry Silbert (DCG CEO) of owing over $1.6 billion to the crypto lender Genesis (DCG property). Around $900 million of that amount would belong to Gemini Earn clients. This is an interest-earning program for holding crypto, launched in 2021 as a partnership between Gemini and Genesis.
Sadly, the withdrawals of the said platform were paused (and not resumed) since November 2022 —after the FTX crash. But the story goes back even further, to the collapse of the crypto fund Three Arrows Capital (3AC) in July 2022. In that disaster, Genesis was, indeed, the largest creditor of 3AC. They had an unpaid loan of over $2.3 billion. DCG saved its crypto lender subsidiary, but, apparently, not without affecting others.
Crypto liquidity issues in DCG?
Now, Genesis fired at least 50% of its staff since August 2022, halted redemptions since November, and it’s considering bankruptcy. That poses another problem, though. As per a letter allegedly sent by Barry Silbert to their shareholders, DCG has to pay $575 million to Genesis in May 2023. In addition, there’s a promissory note of $1.1 billion due in June 2032.
Despite the due date, this could be a callable loan. Since it was an internal transaction (Genesis to DCG), they wouldn’t demand the funds back immediately or in the near future. However, if Genesis goes bankrupt, that changes. DCG would have to pay the promissory note immediately to Genesis creditors. If they fail to do so, it could be the doom of the conglomerate. And that’s good news for no one.
DCG is the parent crypto company not only of Genesis Global Capital. Their subsidiaries include Grayscale Investment (the world’s largest crypto asset manager), the Exploitation minière Bitcoin brand Foundry, the crypto exchange Luno, the crypto portal CoinDesk, and, until January 2023, the wealth management firm HQ.
That’s another bad sign: they closed HQ recently. This division handled around $3.5 billion until December 2022. In the same month, the Dutch crypto exchange Bitvavo alleged that DCG owes them almost $300 million.
Huobi and Binance have issues too
The crypto exchange Huobi, in a close relationship with the cryptocurrency TRON (TRX), it’s facing its own issues as well. Last October, they delisted their own stablecoin (HUSD), which provoked the crash of said token. This January, ils ont annoncé une 20% reduction of their workforce and experienced over $60 million in token outflows in a day. Their stablecoin reserves dropped 9.5% in a week.
To help with the situation, Justin Sun (TRON founder) sent $100 million in stablecoins to the exchange. TRX was barely affected by the issues. However, the native stablecoin of TRON, USDD, lost its 1-USD peg slightly to $0.97. The skepticism against Huobi continues.
Meanwhile, US federal prosecutors are investigating Binance (again). They’re now examining American hedge funds’ dealings with the exchange. Apparently, this would be a part of a long-running investigation into potential violations of money-laundering rules. If they find something out of order, the company’s top executives would have to answer to US authorities. Nevertheless, there’s no more information about it for now.
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