Genesis is the most recent digital currency loan program to declare bankruptcy after Celsius Network, Voyager Digital, and others did so in early 2022.
Genesis Global Capital has banned withdrawals, confirming rumors that surfaced earlier this week. Genesis stated in a series of tweets that its lending business was disrupted but not its trading or custody activities.
Derar Islim, the interim CEO of Genesis, told investors that the company is evaluating options and seeking new funding. He stated that the collapse of the digital currency exchange FTX had resulted in a flood of withdrawals that the Digital Currency Group-owned firm was unable to handle.
The FTX disaster is still wreaking havoc on the business. Since Sam Bankman-Fried’s FTX exchange and associated trading business Alameda Research crashed last week, whispers about the next domino to fall have circulated.
When hedge fund Three Arrows Capital failed, lending platforms such as the Celsius Network and Voyager Digital quickly followed. It appears that Genesis’ declaration foreshadows a similar predicament, with fears regarding BlockFi and some trades looming.
What does this mean for the digital currency sector as a whole?
First, there is the possibility of future spread. While firms such as Galaxy Digital and Tether have stated that they are unaffected by Genesis’ decision, they also suffered losses as a result of the FTX bankruptcy, and industry leaders have a history of issuing false and misleading claims in order to calm investors and traders. Firms such as Crypto.com and BlockFi are said to be in trouble, and even if they survive, it’s likely that a few others are planning to file for bankruptcy.
Second, authorities are quite likely to expedite the process of developing industry regulations and norms. SEC Commissioner Hester Peirce recently told Bloomberg that she is dissatisfied with the regulator’s handling of the situation thus far, and with yet more innocent speculators losing money to blatant fraud and criminality, the pressure on regulators to speed up the process will be increased.
Faith in the industry will dwindle. Large institutional players will be aware of how simple it is to lose your shirt in the industry and will redirect their funds elsewhere. Influencers such as Peter McCormack and Anthony Pompliano, who have both promoted BlockFi for years, will lose credibility, and those who have followed them will begin to doubt the narrative.
Finally, if the crash is severe enough, the cracks that have been appearing in the popular narratives that drive the industry will become so large that no one will be able to ignore them.