The Downfall of Genesis – Everything You Need To Know

The ‘domino rally’ effect in the cryptocurrency space continues to cause havoc. Crypto lender Genesis is the last major company to file for bankruptcy, showing there are still risks associated with the sharp drop in valuations witnessed in 2022. 

Celsius Network and Voyager Digital are other important crypto lenders that both went out of business last year. While Genesis managed to survive longer, it seems like a series of events have gradually pushed the company into the same situation. Its customers have been unable to pull out funds since last November when a withdrawal freeze was formally announced. Let’s try to understand the reasons behind this bankruptcy. 

Connection with the FTX bankruptcy

According to analysts working at Globe Invest Hub, the collapse of FTX, one of the biggest cryptocurrency exchanges in the world, set the wheels in motion. Genesis has originally been set up as an OTC (over-the-counter) BTC trading desk, enabling users to trade large amounts of cryptocurrencies. 

Each time a new bankruptcy is announced, it generally tends to have a negative impact on crypto valuations. Customer funds ultimately have to be returned and that’s generally done by selling the tokens owned by the company on the open market. But what if the company does not have enough tokens available?

Such an environment creates hardships for long-only investors, which is why an increasing number of people are looking at alternatives such as trading CFDs with brokers like Globe Invest Hub. This way, they can take advantage of falling crypto prices too, by using financial derivatives contracts. 

Legal issues in the USA

On top of the FTX bankruptcy, Genesis has also encountered legal hurdles in the U.S. More specifically, the Securities and Exchange Commission (SEC) charged the company with offering unregistered securities in a partnership with Gemini, another important exchange platform. 

Based on the information shared by the regulator, Genesis bypassed disclosure requirements designed to protect investors. This is part of a broader crackdown on crypto lenders. Last year, another crypto lender – BlockFi – had to pay $100 million in penalties. Ultimately, it was also forced to file for bankruptcy in November 2022. 

This isn’t the first time the SEC goes after companies in the cryptocurrency space and the wrongdoings that it found only amplifies calls for regulating the industry as a whole. Experts believe concrete steps might be taken during 2023 and in the long run, it could do good for the industry by reducing fraud. 

Dispute with Gemini

After the SEC charge, a dispute emerged between Digital Currency Group, the conglomerate owning Genesis, and Gemini, the exchange owned by Cameron and Tyles Winklevoss. They have publicly accused Genesis of stalling to hold on to funds that belong to its customers. At the same time, accusations related to misrepresented financial information were launched. 

Gemini customers deposited more than $900 million in assets with Genesis. The product called Gemini Earn has been sold to investors, promising as much as 7.4% interest on crypto holdings. Since last November, 340,000 Earn users are unable to access their funds, considering Genesis froze withdrawals.