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Cryptocurrency market maker and lending firm Genesis Trading is facing potential losses into the “hundreds of millions,” according to three people familiar with the matter.
The losses at Genesis relate, in part, to exposure to over-leveraged hedge fund Three Arrows Capital and Hong Kong-based crypto lender Babel Finance, and are on the order of “a few hundred million dollars,” one of the people said.
The losses come as the collapse of Three Arrows Capital sends shockwaves across the crypto lending industry, with numerous firms facing substantial losses from their exposure to the fund.
The precise tally of Genesis’s losses may not be known for some time because the company is seeking at least partial repayment from its counterparties and some of the losses may have been offset by hedging, the people said. Amid such uncertainty, Genesis has been pulling credit lines from counterparties left and right, according to a fourth market source.
Genesis, which is owned by Digital Currency Group (DCG), also the owner of CoinDesk, issued the following statement from CEO Michael Moro:
"As we already stated on June 17, we mitigated our losses with a large counterparty who failed to meet a margin call to us. We sold collateral, hedged our downside and moved on. Our business continues to operate normally and we are meeting all of our clients' needs."
Neither Babel Finance nor Three Arrows Capital responded to requests for comment.
A cascade of liquidations at many different crypto lending and trading platforms has followed the high-profile unraveling of crypto firms such as Terraform Labs (of Terra and luna infamy), Celsius and Three Arrows Capital, aided by a plunge in the value of cryptocurrencies across the board.
The impact from Three Arrows Capital in particular has been felt widely. Crypto brokerage Voyager saw its stock plunge and was forced to limit withdrawals as it declared the hedge fund in default on loans worth around $670 million. Others, including BlockFi, are believed to be facing similar challenges.
Genesis has previously acknowledged taking a hit in the bear market without giving any numbers. The firm “carefully and thoughtfully mitigated our losses with a large counterparty who failed to meet a margin call to us,” CEO Moro tweeted in mid-June.
4/We will actively pursue recovery on any potential residual loss through all means available, however our potential loss is finite and can be netted against our own balance sheet as an organization. We have shed the risk and moved on.
— Michael Moro (@michaelmoro) June 17, 2022
Genesis originated over $44.3 billion in loans in the first quarter of 2022. Its parent company, DCG, a large crypto conglomerate rumored to have a war chest of about $1 billion, is likely to help Genesis “buffer that kind of shock,” one person said.
Other crypto lenders have enlisted deep-pocketed saviors in recent days, with FTX’s Sam Bankman-Fried making opportunistic investments in BlockFi and Voyager.
Forced deleveraging across markets has further tanked bitcoin’s (BTC) price in recent days with the leading cryptocurrency currently trading hands around $20,000.
UPDATE (June 30, 02:14 UTC): Adds that crypto lender BlockFi is believed to be in similar straits.