The Digital Currency Group (DCG) has struggled to keep its operations afloat following a string of financial woes that have significantly affected its bottom line. And with creditors now on the company’s trail, it appears to have begun dipping into its investment product.
A Last-Ditch Effort to Save Face
Earlier this week, the Financial Times reported that the GDC had started selling units of its Grayscale Investment Trust in a bid to preserve liquidity and stave off requests from its creditors. Citing securities filings made in the United States, the news source confirmed that the financial conglomerate had so far sold about a quarter of its shares in the Grayscale Ether Trust for about $8 a share – even though each share holds a claim to almost twice that amount in Ether (ETH).
The DGC is also said to have liquidated some of its holdings in Grayscale’s Litecoin (LTC), Ethereum Classic (ETC), and Bitcoin Cash (BCH) Trusts, as well as the Grayscale Digital Large Cap Fund, which invests in assets such as Bitcoin (BTC), ETH Polygon (MATIC), Cardano (ADA), and Solana (SOL).
When asked about the selling spree, the GDC reportedly claimed that all of this was part of an annoying portfolio rebalancing effort. However, it appears clear that the company is scrambling to keep its operations out of the red following the past year’s events.
The Genesis Problem Hits Home
The DCG is a conglomerate that covers several of the most prominent investment and financial services companies in the crypto space. Two of the most prominent names under its umbrella include Genesis Capital, one of the market’s foremost lending companies, and asset management behemoth Grayscale Investment.
Over the past year, the DGC’s portfolio companies have been hit significantly. Grayscale has seen its assets under management shrink by over 50% on account of the bear market. The company, which held over $50 billion worth of assets at the end of 2021, now holds just a little over $20 billion, according to its products page. And even though the market is looking bullish once more, the company’s AUM has moved rather slowly as the market’s rally is stapling and investor sentiment remains mixed.
However, Genesis is really where the DGC has felt a significant blow. The lending giant suffered successive losses due to its exposure to Three Arrows Capital and the now-defunct FTX exchange.
According to reports at the time, Genesis had lent well over $2 billion to Three Arrows Capital. However, the DGC assumed about $1.2 billion of that amount, allowing Genesis to continue operating.
The last straw came in November after FTX went bankrupt. Genesis revealed in the weeks after the bankruptcy that it had about $175 million locked in the exchange, and while it claimed that this didn’t affect its market-making capabilities, things have only gone from bad to worse.
As part of our goal in providing transparency around this week’s market events, the Genesis derivatives business currently has ~$175M in locked funds in our FTX trading account. This does not impact our market-making activities.
— Genesis (@GenesisTrading) November 10, 2022
By mid-Janary, Genesis had filed for bankruptcy. The firm estimated its liabilities ranged from $1 billion to $10 billion, although its assets were also in the same range. After failing to raise enough capital to stem its liquidity crisis, the firm decided on bankruptcy as the next best course of action.
Now, it appears that the Genesis problem has also extended to the DCG. The conglomerate announced last month that it would halt its quarterly dividend payments to investors, explaining that the action would help it strengthen liquidity and reduce expenses. Even though the company maintains that its balance sheet is strong, these last-minute fundraising efforts can’t be helping matters.
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