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DCG losses top $1B on the back of 3AC collapse in 2022

The crypto conglomerate reported that falling crypto prices and the fallout from Three Arrows Capital’s loan default to Genesis affected its results.

Cryptocurrency venture capital conglomerate Digital Currency Group (DCG) has reported losses of over $1 billion in 2022 due largely to the contagion relating tocollapse of crypto hedge fund, Three Arrows Capital (3AC).

DCG reportedly lost $1.1 billion last year, according to its Q4 2022 investor report,  and said the results “reflect the impact of the Three Arrow Capital default upon Genesis” along with the “negative impact” from falling crypto prices.

Genesis is the lending arm of DCG, the firm filed for Chapter 11 bankruptcy in late January. Genesis is 3AC’s largest creditor as the company loaned the now-bankrupt hedge fund $2.36 billion, 3AC filed for bankruptcy in July 2022.

DCG’s fourth-quarter losses came to $24 million while revenues came in at$143 million.

Full-year 2022 revenues for DCG came in at $719 million. The firm held total assets of $5.3 billion with cash and liquid holdings of $262 million and investments — such as shares in its Grayscale trusts — amounted to $670 million.

The remaining assets were held by divisions of its asset management subsidiary Grayscale and DCG’s Bitcoin (BTC) mining business Foundry Digital.

Its equity valuation came in at $2.2 billion with a price per share of $27.93 which the report said was “generally consistent with the sector’s 75%-85% decline in equity values over the same period.”

It’s a significant decline from just over a year ago, when DCG declared on Nov. 1, 2021, that its valuation was more than $10 billion following the sale of $700 million worth of shares to companies like Alphabet Inc., Google’s parent company.

Related: Genesis Capital’s fall might transform crypto lending — not bury it

However, the company said it “hit a milestone” with the restructuring of Genesis.

The agreement proposed earlier in February would see DCG contribute its equity share in Genesis’ trading entity and bring all Genesis entities under the same holding company and see its trading entity sold off.

DCG would also exchange an existing $1.1 billion promissory note due in 2032 for convertible preferred stock. Its existing 2023 term loans with an aggregate value of $526 million would also be refinanced and made payable to creditors.

A Genesis creditor said the plan “has a recovery rate of approximately $0.80 per dollar deposited, with a path to $1.00” for those owed money by the firm.

Investors shelter in short-term Treasuries, reducing Bitcoin’s chance of rallying to $30K

DCG offloads Grayscale shares to raise capital: Report

The purported sales are the latest measures the embattled firm has taken following moves in recent months to raise capital and preserve liquidity.

Cryptocurrency conglomerate Digital Currency Group (DCG) has reportedly begun to sell its holdings in crypto funds managed by its subsidiary Grayscale Investments as it looks to raise capital and preserve liquidity.

According to a Feb. 7 Financial Times report citing seen United States securities filings, DCG sold around a quarter of its shares in Grayscale’s Ether (ETH)-based fund for around $8 per share, despite each share holding a claim to nearly double that amount in ETH.

The market price per share (gray) vs holdings per share (green) of the Grayscale Ethereum Trust (ETHE). Source: Grayscale

It’s also said to have sold down small share parcels in Grayscale’s Litecoin (LTC), Bitcoin Cash (BCH) and Ethereum Classic (ETC)-based trusts in addition to its Digital Large Cap Fund — which combines Bitcoin (BTC), Ether, Polygon (MATIC), Solana (SOL) and Cardano (ADA) into a single fund.

When asked about the share sales DCG was quoted as saying that: “This is simply part of our ongoing portfolio rebalancing.”

Despite the statement, some observers believe Barry Silbert’s DCG may be headed toward g financial strife.

Another one of its subsidiaries — crypto lending firm Genesis Global Capital — filed for bankruptcy on Jan. 19 and is believed to owe creditors over $3 billion.

Companies owned by DCG have been severely affected by the contagion resulting from FTX’s implosion, with over 500 employees laid off in recent weeks.

However, DCG has taken a number of steps to preserve liquidity in 2023, such as announcing to its shareholders in a Jan. 17 letter that it would be halting its quarterly dividend payments as it looks to strengthen its balance sheets.

Related: Genesis creditors to expect 80% recovery under proposed restructuring plan

DCG has also sought the help of financial advisory firm Lazard to help it weigh up options to sell crypto media outlet CoinDesk — another of its subsidiaries — after it claimed to have received offers for the outlet exceeding $200 million.

Grayscale, Genesis, and CoinDesk are among some 200 crypto-related businesses in DCG’s venture capital portfolio according to its website. Other companies that DCG has equity in include the crypto exchange Luno and advisory firm Foundry.

Investors shelter in short-term Treasuries, reducing Bitcoin’s chance of rallying to $30K

Genesis entity going up for sale as DCG makes creditor pact

Digital Currency Group (DCG) plans to hand Genesis its stake in the Genesis Global Trading business entity which will then be sold, pending court approval.

Genesis Global has announced it has reached an "agreement in principle" with Digital Currency Group (DCG) which will eventually see its crypto lending and trading arm sold as part of restructuring efforts.

According to a Feb. 6 press release, DCG would contribute its equity in Genesis Global Trading, a trading subsidiary business, to Genesis Global Holdco, the holding entity for Genesis — bringing all Genesis-related entities under the same holding company.

After the transactions are final — pending necessary court approval — Genesis will seek to put its then-owned Genesis Global Trading entity up for sale.

Crypto exchange Gemini also agreed to contribute $100 million for its Gemini Earn users who have funds frozen with the bankrupt firm.

Genesis is currently restructuring as part of its Chapter 11 bankruptcy proceedings stemming from a liquidity crisis in November 2022, brought on by the bankruptcy of crypto exchange FTX.

Genesis Global Trading was not included in the company's Chapter 11 filing at the time saying the business would "continue client trading operations."

At an initial bankruptcy hearing in January Genesis lawyers expressed the firm was looking for a quick resolution to it's creditor disputes and were optimistic the company would come out of Chapter 11 proceedings by late May.

This is a developing story, and further information will be added as it becomes available.

Investors shelter in short-term Treasuries, reducing Bitcoin’s chance of rallying to $30K

Ethereum (ETH) price is aiming for $1,800 in February — Here is why

ETH price is finding support at $1,560 and multiple data points are beginning to hint at a possible rally to $1,800 before the end of February.

Ether (ETH) has been struggling with the $1,680 resistance since Jan. 20. Still, the ascending triangle pattern and improvements in investor sentiment in ETH derivatives provides hope that Ether price could reach $1,800 or higher by the end of February. This, of course, depends on how the Ether price behaves as it reaches the pattern deadline by mid-February. 

Ether/USD price index, 12-hour. Source: TradingView

From one side, traders are relieved that Ether is trading up 33% year-to-date, but the repeated failures to break the $1,680 resistance coupled with negative newsflow might give bears the power to cancel the bullish triangle pattern.

According to a Jan. 30 report from Axios, New York State's Department of Financial Services is reportedly investigating cryptocurrency exchange Gemini over claims that the firm made regarding assets in its Earn lending program. The suspicions followed reports that multiple Gemini Earn users believed their assets had been protected by the Federal Deposit Insurance Corporation (FDIC).

On Jan. 12, the U.S. Securities and Exchange Commission charged the Gemini exchange with offering unregistered securities through Earn. In addition, Gemini co-founder Cameron Winklevoss has claimed that Genesis and DCG owe $900 million to Gemini's clients.

Several United States senators have reportedly penned a letter requesting answers from Silvergate Bank, according to a Jan. 31 Bloomberg report. The policymakers were not fully satisfied with the bank's previous answers about its alleged role in handling FTX user funds. Silvergate reportedly cited restrictions on disclosing "confidential supervisory information."

On the bright side, Ethereum Foundation developer Parithosh Jayanthi announced that the "Zhejiang" public testnet will be launched on Feb. 1. The implementation will allow staked Ether withdrawal on a test environment so that validators can anticipate the proposed changes for the Shanghai hard fork.

Let's look at Ether derivatives data to understand if pro traders are frustrated by the recent price rejection at the $1,680 level.

ETH’s futures premium has failed to enter the FOMO area

Retail traders usually avoid quarterly futures due to their price difference from spot markets. Meanwhile, professional traders prefer these instruments because they prevent the fluctuation of funding rates in a perpetual futures contract.

The annualized two-month futures premium should trade between 4% and 8% in healthy markets to cover costs and associated risks. When the futures trade at a discount versus regular spot markets, it shows a lack of confidence from leverage buyers, which is a bearish indicator.

Ether 2-month futures annualized premium. Source: Laevitas.ch

The above chart shows that traders using future contracts have failed to enter the neutral-to-bullish 4% threshold. Still, the current 3.5% premium denotes a moderate sentiment improvement compared to two weeks prior, but that does not mean traders expect an immediate positive price action.

For this reason, traders should analyze Ether's options markets to understand how whales and market makers are pricing the odds of future price movements.

Options traders are comfortable with downside risk

The 25% delta skew is a telling sign when market makers and arbitrage desks are overcharging for upside or downside protection.

In bear markets, options investors give higher odds for a price dump, causing the skew indicator to rise above 10%. On the other hand, bullish markets tend to drive the skew indicator below -10%, meaning the bearish put options are discounted.

Ether 60-day options 25% delta skew: Source: Laevitas.ch

The delta skew has stabilized near 0% in the last two weeks, signaling that Ether options traders held a neutral sentiment. That is particularly intriguing since ETH gained 10% on Jan. 20 — indicating pro traders are pricing similar upside and downside risks.

Related: UK Treasury publishes crypto framework paper, Here’s what’s inside

Ultimately, both options and futures markets point to whales and market makers not comfortable with adding leverage longs, but at the same time, not worried if the $1,570 ascending channel support breaks.

Traders will watch to see if Ether bulls are able to keep the price within the bullish triangle formation for the next two weeks, but if the macroeconomic environment allows, ETH derivatives point to a potential rally toward $1,800.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Investors shelter in short-term Treasuries, reducing Bitcoin’s chance of rallying to $30K

Genesis eyes fast resolution to creditor disputes and bankruptcy exit in May

A lawyer for Genesis is optimistic it can resolve creditor disputes before the week is out while the firm could exit bankruptcy proceedings in four months.

A lawyer for bankrupt crypto lending firm Genesis is optimistic the firm can resolve its creditor disputes as early as this week and the company could come out of Chapter 11 proceedings by late May.

Genesis’ lawyer Sean O'Neal made the comments at a Jan. 23 initial hearing at the United States Bankruptcy Court for the Southern District of New York, according to a Reuters report.

He added Genesis had "some measure of confidence" it would resolve disputes with creditors by the end of the week and, if needed, would look for the judge to install a mediator, but said:

"Sitting here right now, I don't think we're going to need a mediator. I'm very much an optimist."

Genesis filed for Chapter 11 bankruptcy on Jan. 19. At the time it already had a restructuring plan along with a path pursuing a “sale, capital raise, and/or an equitization transaction" so it could potentially “emerge under new ownership.”

The bankruptcy comes nearly two months after Genesis suspended withdrawals in November 2022 citing market turbulence caused by the bankruptcy of crypto exchange FTX.

A series of "first-day" motions, standard in bankruptcy proceedings, were granted by Judge Sean Lane to Genesis which included allowing the firm to pay employees and vendors.

Lane added Genesis did not need to reveal customer names on its creditor's list, citing privacy concerns. Lane even suggested the lender warn users about possible phishing scams if the names are later made public.

Genesis said it will sell its assets at auction with a plan to exit its bankruptcy in a little under four months on May 19.

Related: BlockFi exec argues bankruptcy court should approve bonuses to retain talent

It reported having just over $5 billion in assets and liabilities and owes over 100,000 creditors at least $3.4 billion. Genesis’ withdrawal suspension last year impacted users of a yield-bearing product it managed called “Earn” from the Gemini exchange.

Gemini is Genesis’ largest creditor and is owed nearly $766 million.

Its largest debtor was its parent company, Digital Currency Group (DCG), which owes Genesis around $1.65 billion inclusive of $575 million of loans due in May and a $1.1 promissory note maturing in 10 years' time.

Even though DCG is facing its own financial troubles — the bankruptcy did not include DCG. Similarly, the Genesis entities handling derivatives, spot trading, broker-dealer and custody are not part of the proceedings and are continuing operations according to Genesis.

Investors shelter in short-term Treasuries, reducing Bitcoin’s chance of rallying to $30K

SEC’s ‘one-dimensional’ approach is slowing Bitcoin progress: Grayscale CEO

Grayscale’s chief was the latest to take a swing at the authority for its so-called “regulation by enforcement” actions.

The approach to crypto regulatory enforcement by the United States Securities and Exchange Commission (SEC) stalled the advancement of Bitcoin (BTC) in the country, according to the CEO of Grayscale Investments.

In a letter published in The Wall Street Journal on Jan. 23, the chief of the cryptocurrency asset management firm, Michael Sonnenshein, said he agreed with an assertion that the SEC was “late to the game” regarding crypto regulation and preventing the bankruptcy of FTX, adding:

“‘Late’ doesn’t capture what transpired here. The problem is the Securities and Exchange Commission’s one-dimensional approach of regulation by enforcement.”

Grayscale is currently suiting the SEC for denying the conversion of its Bitcoin trust to a spot-based Exchange Traded Fund (ETF).

He clarified the SEC “should certainly try to eliminate bad actors” but it shouldn’t hinder “efforts to develop appropriate regulation.”

The inaction by the regulator to stop such bad actors from entering the crypto industry “prevented Bitcoin's advancement into the U.S. regulatory perimeter” according to Sonnenshein.

This has thus forced American investors to offshore crypto businesses “with less protection and oversight," he said.

“We are seeing the consequences of the SEC’s priorities play out in real-time — at the expense of U.S. investors.”

Cointelegraph has reached out to the Securities and Exchange Commission for comment.  

Sonnenshein’s opinion piece comes amid an ongoing lawsuit between Grayscale and the SEC for having “arbitrarily denied” Grayscale’s plans to convert its Grayscale Bitcoin Trust (GBTC) to a spot ETF.

The SEC argued Grayscale’s proposal did not sufficiently protect against fraud and manipulation. Grayscale countered saying the SEC was arbitrarily treating spot-traded products differently from futures-traded products.

Grayscale is owned by the crypto conglomerate Digital Currency Group (DCG), which is currently undergoing financial difficulties.

DCG also owns the bankrupt Genesis Trading which was charged by the SEC on Jan. 12 for allegedly selling unregistered securities.

Related: SEC leaked crypto miners’ personal information during investigation: Report

Over the weekend, John Reed Stark, a crypto skeptic and former SEC chief lambasted the term “regulation by enforcement” labeling it a “Bogus Big Crypto Catch Phrase.”

In a Jan. 22 post on Linkedin, he said the term was a “misguided, deflective effort designed to tap into sympathetic libertarian and anti-regulatory mores” calling it “utter nonsense.”

He argued that “litigation and SEC enforcement are actually how securities regulation works.”

Investors shelter in short-term Treasuries, reducing Bitcoin’s chance of rallying to $30K

Cathie Wood: Ark dumps 500K GBTC shares, adds Coinbase stock as Bitcoin recovers 40%

Ark's GBTC weight in the portfolio actually increased despite the fund selling 500,000 shares in the past month.

Cathie Wood's Ark Invest offloaded a chunk of its Grayscale Bitcoin Trust (GBTC) shares since November's Bitcoin (BTC) price lows, the latest data shows.

Cathie Wood's Ark short-term cautious on GBTC

Ark Invest added 450,272 GBTC shares worth $4.5 million to its ARK Next Generation Internet ETF (ARKW) in November 2022. At the time, GBTC was trading in the $7.46-$9.48 range versus $12.25 in January 2023.

GBTC price, of course, recovered alongside Bitcoin, rising roughly 40% from its November lows. The recovery in January also helped reduce the GBTC "discount" from nearly 50% to 40%, according to YCharts.

GBTC daily price chart. Source: TradingView

Interestingly, the share price rebound coincided with a reduction in ARKW's GBTC holdings by 500,000 shares, suggesting profit taking in the short ter.

GBTC shares (purple) in Ark's ETF versus its price (orange). Source: Cathiesark.com

Moreover, Ark's reduction in shares since November appears in line with its officially "bearish view" on the Grayscale Bitcoin Trust, as mentioned in its December report, which stated that:

"The Digital Currency Group (DCG) appears to be one of the biggest questions marks in the crypto industry at this time."

The company also expressed concerns about Genesis Global, a cryptocurrency lender owned by DCG. Genesis filed for bankruptcy while claiming $1 billion to $10 billion in liabilities to over 100,000 creditors.

Meanwhile, Grayscale has been unable to convert its Bitcoin trust into an ETF following rejections from the U.S. Securities and Exchange Commission (SEC). As Cointelegraph reported, an approval from the SEC could reset GBTC's discount to zero.

Nonetheless, as of Jan. 23, GBTC's share weight in Ark's portfolio has actually increased to 0.52% compared to its November 2022 low of 0.35%. 

GBTC shares' weight (purple) across Ark ETFs. Source: Cathiesark.com

Ark adds $17.6M in Coinbase stock

Ark's selling of GBTC shares in the past weeks coincided with accumulation of Coinbase (COIN) shares. 

Cathie Wood's ARKW added 320,000 COIN shares (about $17.6 million) in 2023. As a result, the Coinbase stock's weight in Ark Invest's combined ETF portfolios has reached nearly 3.62% on Jan. 23 versus 2.73% at the start of this year.

COIN shares (purple) in Ark's ETF versus its price (orange). Source: Cathiesark.com

Overall, Ark appears to be only increasing its exposure to the Bitcoin market, particularly as Wood is well known for her consistent $1 million BTC price prediction by 2030. 

Can the GBTC price rally continue?

Similarly, Greenery Financial, an investment strategy firm, confirmed that it had shifted its GBTC exposure to ProShares Bitcoin Strategy ETF (BITO) due to the above-mentioned risks around DCG.

"Any bad news, be it Cathie Wood selling out of GBTC or DCG going bankrupt, will spark the same fears and doubt - of uncertainty - and likely cause an expansion of the discount once again," the firm warned in its SeekingAlpha note, saying:

"With Bitcoin having no real catalyst in the short term and plenty of potential downside catalysts, there are plenty of risks here from the NAV side as well."

Nonetheless Bitcoin and GBTC prices may keep on rallying through Q1 from a technical perspective.

On the daily chart, GBTC has reclaimed its 50-day exponential moving average (50-day EMA; the red wave in the chart below) near $9.68 as support.

Related: Grayscale files brief in ETF suit against SEC, oral arguments may come within months

Upward momentum could see it test the 200-day EMA (the blue wave) near $15 if it continues to float above the 50-day EMA wave, similar to what happened in March-April 2022.

GBTC daily price chart. Source: TradingView

The technical upside target falls in line with what Pat Tschosik, senior portfolio strategist at Ned Davis Research, predicts about the Grayscale Bitcoin Trust.

He argues that GBTC price could not only double by mid-2023, but also narrow the extant discount gap with Bitcoin's spot price. 

“We recommend GBTC…as a way to play Bitcoin because it has a ‘potential NAV kicker rebate,’ which not only means it would go up if Bitcoin goes up, but also closing its current large 35% rebate on NAV,” Ned Davis Research said in a note to clients.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Investors shelter in short-term Treasuries, reducing Bitcoin’s chance of rallying to $30K

Cameron Winklevoss Says Gemini Will Sue Digital Currency Group and Barry Silbert As Genesis Files for Bankruptcy

Cameron Winklevoss Says Gemini Will Sue Digital Currency Group and Barry Silbert As Genesis Files for Bankruptcy

The co-founder of US-based exchange giant Gemini is announcing his exchange will sue the parent company of bankrupt crypto lender Genesis. Yesterday, Genesis Global Capital, LLC filed for Chapter 11 bankruptcy after weeks of speculation that they could do so. The Gemini co-founder and his twin brother Tyler Winklevoss have been in a public social media spat with Genesis’ […]

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Investors shelter in short-term Treasuries, reducing Bitcoin’s chance of rallying to $30K

Coindesk Up for Sale? Investors Circle Crypto News Publication Amidst Genesis Bankruptcy

Coindesk Up for Sale? Investors Circle Crypto News Publication Amidst Genesis BankruptcyAccording to various reports, investors are reportedly interested in purchasing Coindesk, a cryptocurrency news publication. On Jan. 18, Wang Feng, founder of China-based news publication Marsbit, announced his intentions to purchase Coindesk along with other members of the crypto industry. This news follows a report from Semafor at the end of November 2022 stating that […]

Investors shelter in short-term Treasuries, reducing Bitcoin’s chance of rallying to $30K

Bitcoin (BTC) Fights To Regain $21,000 Amid Genesis Rumors and Charges Against Little-Known Crypto Exchange

Bitcoin (BTC) Fights To Regain ,000 Amid Genesis Rumors and Charges Against Little-Known Crypto Exchange

Bitcoin (BTC) is on the cusp of regaining $21,000 as charges are filed against a little-known crypto exchange platform and rumors swirl around embattled crypto lender Genesis. In a new press release, the U.S. Department of Justice (DOJ) is announcing charges against Hong Kong-based crypto exchange Bitzlato and its founder, Russian national Anatoly Legkodymov. The […]

The post Bitcoin (BTC) Fights To Regain $21,000 Amid Genesis Rumors and Charges Against Little-Known Crypto Exchange appeared first on The Daily Hodl.

Investors shelter in short-term Treasuries, reducing Bitcoin’s chance of rallying to $30K