Crypto conglomerate Digital Currency Group has used funds borrowed from its embattled Genesis unit to invest in another subsidiary’s products, highlighting sensitive links in billionaire Barry Silbert’s empire.
silbert wrote to shareholders On Tuesday, DCG announced that it has borrowed $575 million from its broker, Genesis, which is currently seeking funding to prevent collapse in an industry-wide crisis that is accelerating.
DCG told the Financial Times that it used some of these funds to purchase an investment product issued by Grayscale, which operates a US-listed trust that tracks the price of bitcoin.
DCG lacks the public profile of exchanges like FTX or Binance, but it is one of the largest and oldest investors in a crypto industry and is still reeling from Sam Bankman-Fried’s collapse this month. FTX. This latest statement highlights links between Silbert’s group, which was valued at $10 billion last year by investors like SoftBank, Singapore’s independent wealth fund GIC, and Google’s venture arm CapitalG.
New York-based Genesis Trading suspended withdrawals Citing “unprecedented market turmoil”, he left the lending unit last week and has been looking to raise cash ever since. He said he was not at risk of “imminent” bankruptcy this week, but has since hired Moelis investment bankers to help explore “all possible options.”
DCG has spent $772 million on open market purchases of Grayscale Bitcoin Trust (GBTC) units since March 2021, according to US securities filings. Some of DCG’s purchases have been funded by US dollars and bitcoin, which the group borrowed from Genesis Trading, DCG told the FT.
Silbert told investors that DCG borrowed $575 million “at peers” from Genesis to fund undisclosed “investment opportunities” and repurchase DCG shares from non-employment shareholders.
DCG later told the FT that “some” of the borrowing from Genesis was used to finance the GBTC purchases, with $300 million being spent on share buybacks.
DCG declined to comment on whether the loan from Genesis was secured by assets like GBTC.
The price of the Grayscale trust units DCG purchased has dropped sharply since then. The weighted average price of purchases since March 2021 was $40, according to an FT analysis, but units closed at $9.23 on Wednesday. DCG said it has other balancing positions that make GBTC purchases “independent of the market.”
Until October of this year, traders wishing to deposit bitcoin in the Grayscale trust in exchange for more easily tradable GBTC units had to use Genesis as the exclusive issue medium. The Grayscale trust pays DCG-owned Grayscale an annual fee of 2 percent of its assets under management.
Investing in GBTC had previously created easy profits for traders because by early 2021, it was trading at a higher price than the underlying bitcoin asset. The premium existed because of the demand for bitcoin wrapped in a traditional financial structure.
GBTC is now trading at a steep 39 percent discount to bitcoin price. The U.S. Securities and Exchange Commission has repeatedly refused to allow the Grayscale trust to evolve into an exchange-traded fund structure open to retail investors.
The popularity of GBTC when trading at a premium and the ease of trading the units have meant that it is widely used as collateral on crypto loans, including Genesis itself.
Silbert’s holding company injected cash into Genesis this year after a series of high-profile shocks to the industry. One came after Genesis lost $1.1 billion on a loan. collapsed hedge fund Three Arrows Capital committing GBTC as collateral for the loan. Silbert said on Tuesday that DCG assumed the responsibilities of Genesis in the process and subsequently owed Genesis $1.1 billion.
More recently, DCG injected $140 million into Genesis hours before FTX filed for bankruptcy. Genesis has since been racing to raise extra new funding and said Wednesday it is working with DCG and Exchange Gemini to support liquidity to its clients.
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