The failure of FTX is causing problems for other companies in the cryptocurrency world. This is also the case with cryptographic service provider Genesis. What is happening in the company? “They have big problems,” says Teunis Brosens, an economist at ING who specializes in digital money.
Genesis is an investment fund, one of the leading lenders in the cryptocurrency world. They do not trade in cryptocurrencies, but they lend to cryptocurrency companies and also invest in them. They specifically target financial institutions, such as hedge funds and asset managers. Earlier this year, Genesis had nearly $3 billion (about €2.8 billion) in loans outstanding, according to Reuters.
Cryptocurrency lenders like Genesis are basically the banks of the crypto world. “Unlike traditional banks, there are few rules they have to follow,” Brosens says. “That’s why crypto firms are often not transparent. We don’t know exactly what goes on behind closed doors.”
After FTX filed for bankruptcy last week, Genesis stopped making new loans. The company has also blocked the ability for customers to withdraw money. The Wall Street Journal reported on Monday that Genesis had turned to other investors for a $1 billion emergency loan.
“Now a lender has to take over the company or invest a lot of money. Otherwise, Genesis will also go bankrupt,” says Brosens.
What do FTX and Genesis have in common?
Genesis had about $175 million in an account with FTX earlier this year, Brosens says. As a result, they are also victims of FTX bankruptcy, which can no longer repay this money. It could be that they also gave FTX a loan. Or that they invested in FTT, the bankrupt company’s currency. “But since there is little transparency in the cryptocurrency world, nobody knows exactly how the lines run between companies,” says the economist.
“Genesis already suffered some losses earlier this year,” Brosens said. This spring, all financial markets struggled. Not only traditional markets, but also cryptocurrencies have been affected. Also, the Terra cryptocurrency crashed. This has had an effect on many cryptocurrency companies. Not only on FTX, but also on Genesis. For example, they had invested in Terra. “These problems have gotten worse since then,” says the economist.
Genesis is an investment fund that focuses on institutions. Therefore, this does not immediately affect people who have invested in cryptocurrencies. “But it fuels investor jitters,” Brosens says. “It damages trust in the cryptocurrency market.” If Genesis were to go out of business, it could ultimately affect the companies Genesis lent money to or invested in. This could hurt individual investors.”
Is there a domino effect?
“It has become clear that many cryptocurrency companies are intertwined,” Brosens says. “You can draw lines from one company to another, they buy each other’s cryptocurrencies, they invest in each other. That can really cause a domino effect. If the major players fall, the rest will fall as well.” We don’t yet know how big that domino effect would be.
According to Brosens, we need to distinguish between the original old cryptocurrencies, such as bitcoin, and the exchanges and platforms that have been built around them. “There’s not much going on with cryptocurrencies like bitcoin right now,” says the economist. Coins have lost value. “But that has more to do with trusting people who invest in it, not dependency on other cryptocurrency companies.”
