The decisive factor for Genesis Global Capital in settling its debt with the parent DCG is the exact withdrawal dates from Alameda Research’s troubled OTC platform. This was stated by Messari founder and CEO Ryan Selkis.
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1/ The final DCG-Genesis question has to do with potentially catastrophic bad luck. In Q2 and Q3, Genesis unwound over $10 billion of its loan book.
Given Alameda and Genesis were the two biggest crypto borrower-lender counterparties in the world, it’s likely they had loans.
— Ryan Selkis 🥷 (@twobitidiot) December 11, 2022
The expert noted that in Q2 and Q3 Genesis Global Capital dutifully closed $10 billion of loans, and this could have amounted to \”catastrophic bad luck.\”
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On the crypto market, Alameda and Genesis were the largest market makers, and it is unlikely they did not act as counterparties to each other, Selkis suggested.
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In his view, by the moment of the collapse of FTX, the positions between them had been closed. On the one hand, this suggests good risk management; on the other, it raises questions about the timing of the trades.
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The expert explained that in bankruptcy cases there is a 90-day clawback period.
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With the FTX/Alameda filing on November 11, this clause has been in effect since August 13. In other words, Genesis could have invoked it if the latest dealings with Sam Bankman-Fried’s trading firm were recorded after that date. The reverse is also true.
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As a result, Selkis asked the following questions:
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- Did Genesis borrow funds from Alameda?
- If so, how many transactions occurred after that reporting date?
- Will these trades be subject to a clawback provision?
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The founder of Messari did not rule out that, between August 13 and November 11, counterparties conducted a large number of trades with each other. This could pose a hurdle for a potential investor in DCG, who would not want to take on such a risk.
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The complication is that any clarification may come only after the years-long, incredibly complex bankruptcy process of FTX, which could leave Genesis with a \”long-term liability\” on its balance sheet.
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In summary, according to Selkis, the following questions remain unresolved, which effectively will determine the scope of contagion in the cryptocurrency market:
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- What is the fate of GBTC;
- Does DCG hold a promissory note to Genesis for $1.1 billion with a prepayment option;
- Did the OTC platform provide loans to Alameda Research between August 13 and November 11.
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Regarding the latter, Selkis pointed to the low chances of Genesis recovering funds under the clawback clause.
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The expert expects a \”major legal battle\” that will complicate assessing the potential range of impacts on the size of the liabilities.
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Earlier, Selkis described the best-case scenario for Digital Currency Group to exit the crisis.
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Earlier, Bernstein had contemplated the liquidation of the Grayscale Bitcoin Trust as a solution to the \”problematic\” DCG.
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