DCG’s Barry Silbert reveals crypto firm has $2 billion in debt as he tries to calm investors after FTX

Barry Silbert, founder of the Digital Currency Group, has joined a growing list of industry leaders in an effort to calm investor nerves after the sudden collapse of FTX.

In a note to shareholders on Tuesday, Silbert addressed all the “hype” about the financial health of DCG affiliates, which include trading firm Genesis, Grayscale Investments and mining firm Foundry.

Since FTX’s rapid decline two weeks ago, investors have been concerned about a cryptocurrency contagion affecting every corner of the industry. Lenders stopped lending, withdrawals were more difficult and unregulated, and incomprehensible tokens fell in value. leading cryptocurrency, bitcoin And the etherThey also continued their descent for a year.

Despite the cryptocurrency winter, Silbert, an early bitcoin evangelist who founded DCG in 2015, said the company as a whole is on track to generate $800 million in revenue this year on the back of only $25 million raised in seed capital since inception. Forbes estimates Silbert’s net worth at $2 billion.

“We’ve weathered previous cryptocurrency winters,” Silbert wrote, adding that “while this may be more severe, we will collectively come out of it stronger.”

Coinbase, Binance, and Crypto.com similarly did their best to allay customer concerns to avoid an FTX-type run on customer deposits. Each of them expressed their shock at FTX’s apparent deception of investors and clients and confirmed that the client’s assets are safe.

This is all with the realization that FTX and its founder, Sam Bankman-Fried, betrayed the trust of an industry that was already in the midst of a brutal year of losses. Bankman-Fried said his company’s assets were “good” two days before he despaired of a bailout due to a cash crunch.

Specifically for DCG, investor confidence took a hit last week, when the Wall Street Journal reported that Genesis was trying to raise $1 billion from investors before finally halting some withdrawals. There have been reports that Genesis will soon file for bankruptcy, which the company has publicly refuted.

Fear has spread to Grayscale Bitcoin Trust, known for its tape GBTC, which allows investors to access Bitcoin through more traditional security. GBTC is currently trading at a 42% discount on Bitcoin, up from a discount of nearly 30% two months ago.

Regarding Genesis’ lending business, Silbert said in the letter that the November 16 hold on redemptions and new loan issuance was a “liquidity issue and term mismatch” in the loan book. He said these issues had “no impact” on Genesis’ spot and derivatives trading or custody business, which “continues to operate as usual”.

He acknowledged that Genesis has hired financial and legal advisors while the company weighs its options.

DCG has a debt of just over $2 billion. The company lent Genesis about $575 million, at “predominant market interest rates,” which matures in May 2023. It also absorbed $1.1 billion in debt that Genesis owed to bankrupt crypto hedge fund Three Arrows Capital.

Silbert wrote that with the bankruptcy of Three Arrows, DCG is “pursuing all available remedies to recover assets in favor of creditors.” DCG’s only other debt is a $350 million credit facility from “a small group of lenders led by Eldridge.”

Read the full letter from Silbert below:

Dear Shareholders,

There has been a lot of noise over the past week and I want to call directly to clarify our position at DCG.

Most of you are familiar with the situation at Genesis, but to recap in advance: Genesis Global Capital, Genesis’ lending business, temporarily suspended redemptions and new loan issuance this past Wednesday, November 16th after market turmoil resulted in unprecedented withdrawal requests. This is a liquidity problem and term mismatch in the Genesis loan book. Importantly, these issues have no impact on Genesis’s spot and derivatives trading or custody business, which continues to operate as normal. Genesis’ leadership and board have decided to hire financial and legal advisors and the company is exploring all possible options amid the fallout from the FTX collapse.

In recent days, there has been talk of intercompany loans between Genesis Global Capital and DCG. For those unaware, in the normal course of business, DCG has borrowed money from Genesis Global Capital similar to hundreds of crypto investment firms. These loans have always been on a purely commercial basis and have been priced at prevailing market rates of interest. DCG currently has a liability to Genesis Global Capital of approximately $575 million, which matures in May 2023. These loans were used to fund investment opportunities and buy back DCG stock from non-employee shareholders in secondary transactions previously highlighted in our quarterly shareholder updates. And to this day, I have never sold a share of my DCG stock.

You may also recall that there is a $1.1 billion promissory note due in June 2032. As we shared in our previous shareholder letter in August 2022, DCG stepped in and assumed some liability from Genesis in connection with the default on Three Arrows Capital. As reported in August, since these liabilities are now DCG liabilities, DCG is participating in the Three Arrows Capital winding-up proceeding in the Creditors Committee and is pursuing all available remedies to recover the assets in favor of the creditors. Aside from Genesis Global Capital intercompany loans due in May 2023 and a long-term promissory note, DCG’s only debt is a $350 million credit facility from a small group of lenders led by Eldridge.

Taking a step back, let me be crystal clear: DCG will continue to lead the way in building the industry and we are committed to our long-term mission to accelerate the development of a better financial system. We’ve weathered previous crypto winters, and while this may be steeper, we’ll come out of it collectively stronger. DCG has only raised $25 million in seed capital, and we’re accelerating to $800 million in revenue this year.

I bought my first bitcoin a decade ago in 2012 and made the decision that I would stick with this industry for the long haul. In 2013, we founded the first BTC trading company – Genesis – and the first BTC fund, which evolved into Grayscale, now the world’s largest digital currency asset manager. Foundry runs the largest bitcoin mining pool in the world and is building the decentralized infrastructure of the future. CoinDesk is the industry’s leading media, data, and events company and they’ve done an exceptional job covering this crypto winter. Luno is one of the most popular crypto wallets in the world and an industry leader in emerging markets. TradeBlock is building a seamless institutional trading platform and as the newest subsidiary, HQ is creating a life and wealth management platform for digital asset entrepreneurs. Each of these subsidiaries are stand-alone companies that are independently managed and operate as normal. Finally, with a portfolio of more than 200 companies and funds, we are often the first screening of the industry’s best founders.

We appreciate your words of encouragement and support, along with offers to invest in DCG. We’ll let you know if we decide to go for a funding round.

Despite difficult industry conditions, I am more excited than ever about the potential of cryptocurrency and blockchain technology over the coming decades, and DCG is determined to stay ahead.

Barry

Watch: Grayscale is suing the SEC over the rejection of the Bitcoin ETF

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