Can Genesis be saved from FTX contagion?

GB Market Commentary 21/11/2022

by Marcus Sotiriou

Bitcoin and the crypto markets sold off over the weekend after talk of DCG (Digital Currency Group), who were valued at $10 billion at the height of the bull market, being in trouble. DCG own some fundamental crypto companies, including Genesis and Grayscale. The former is the biggest crypto lender and aims to raise $1 billion by today in order to move forward.

Genesis have been hit extremely hard by the collapse of various crypto entities this year. They lent $3.2 billion to Three Arrows Capital, which DCG covered for them. DCG injected $140 million to Genesis last week to help provide short term liquidity, but do DCG have enough dry powder to help Genesis raise a $1 billion line of credit by Monday? I assume not, but we will certainly find out soon.

Amidst the uncertainty, Bitcoin is currently ranging in the short term from $15,600 to $18,100, and at time of writing is at $16,100 towards the low end. If Genesis manage to secure a deal, then we could see relief in the crypto market in the short term, as it would provide clarity that the biggest crypto lender will not collapse and cause further contagion.

Miners are currently among the biggest Bitcoin sellers. In fact, we are seeing miners sell at the most aggressive rate in almost 7 years (up 400% in just 3 weeks). This is partly due to mining difficulty (how difficult it is for miners to find the right blocks and mine Bitcoin) reaching a new all-time high, after the latest +0.5% adjustment. As mining difficulty increases, Bitcoin mining operators become less profitable.

Therefore, the longer price consolidates around this level, the more likely it is that Bitcoin miners will be forced to go out of business and sell their Bitcoin.