Genesis Declares Bankruptcy |
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| After months of uncertainty following FTX and 3ACs collapses, crypto lender Genesis has officially declared bankruptcy.
The news follows reports that the company had been in negotiations with creditors to raise cash for its troubled lending unit.
The Bankruptcy
Importantly, Genesis declared Chapter 11 bankruptcy. This means they seek to restructure their obligations to remain in business, not shut down.
But that will be a difficult task considering their extensive liabilities of $3.6 billion in total debt, including: - $765.9 million in debt to Gemini
- $151.5 million owed to Singapore venture capital firm Mirana Corp
- Another $150 million owed to Hong Kong’s Babel Finance
- And on and on it goes, with 50 total creditors listed
Genesis has $150 million in cash on hand (plus $500 million in digital assets, and $385 million in shares in brokerage accounts) to fund the bankruptcy proceedings. Considering the herculean task ahead, they’ll likely need every penny.
The Bigger Picture
Nothing in crypto happens in a vacuum. Genesis’s bankruptcy will be felt throughout the crypto markets: - Gemini is happy that Genesis’s dirty laundry will now be aired in court, but they still face an uphill climb to recovering their missing $765.9 million. That is because Gemini may have really messed up selling the GBTC that Genesis put up in a behind-the-scenes agreement between the two parties last year. Genesis asserts that all outstanding debt to Gemini is now invalid. If a court agrees with them, then Gemini Earn customers will be left severely in the red.
- Genesis is owned by Digital Currency Group (DCG), which also owns Grayscale, the keeper of the Grayscale Bitcoin ETF trust. It was previously feared that if Genesis went under, DCG would have to liquidate Grayscale’s Bitcoin (GBTC) to cover the losses. This would put an immense amount of Bitcoin selling pressure onto the market, tanking already depressed prices. Well, we might end up avoiding this doomsday scenario. Genesis’ bankruptcy filing revealed that 31 million of Grayscale’s GBTC has already been sold in recent months! This leaves about 35 million shares of GBTC left between Genesis and its parent company DCG, an amount that the market should be able to absorb much easier. TLDR: One of the scariest scenarios from Genesis and DCG’s troubles isn’t so scary anymore.
- If you’re in the mood for a migraine, try to follow the complex daisy chain of crypto leverage. As the chart shows, Genesis was central to funding everything that went wrong in 2022. However, this can be seen as a good sign, as Genesis is now the last domino to fall. In other words: we’ve flushed out everybody who can hurt us.
Like all major bankruptcy proceedings, Genesis’s will take a while, and not every creditor will leave happy.
However, this is a time to rejoice if you’re in crypto for the long haul. We’re now free from the incompetent actors who sent us spiraling in 2022, and should have a clean slate going forward. 🤞
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This Tech Company Is Ready To Disrupt Wall Street |
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| This Telecom company is a leading global developer and provider of cellular communications systems for enterprise customers.
They have been a pioneer in the industry, launching the world’s first 4G LTE all-in-one fleet communications device. Incorporating voice, push-to-talk over cellular, data, and fleet management solutions into a single device, this company aims to become the connected vehicle communications device of choice for commercial vehicles and fleets worldwide.
They provide disruptive solutions for the Push-to-talk-over-Cellular (PoC) industry, with three complementary product categories targeted to the same core channels and customers.
Learn why they are disrupting a legacy industry with the next generation cellular technology.
Find The Complete Company Report Here
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Another Backdoor Way To Profit Off of Bitcoin |
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| Flashback exactly one year ago today, and the price of bitcoin (BTC) was hovering right around $36,000.
Sure, it had recently fallen from its all-time high of ~$68,000, but the fact that the price was taking a breather was nothing unexpected… BTC had gone through a handful of similar cycles before.
Plus, the industry was still firing on all cylinders… - Acquisitions were hot. Gemini had just acquired Omniex. Coinbase had just acquired FairX. Opensea had just acquired Dharma Labs.
- Huge venture funds were being raised. FTX launched a $2 billion fund. Crypto•com added $300 million to their fund. Kraken and Circle launched a fund. And Coinbase was making an investment every two days.
- The sentiment was still boomin’. The Lightning Network had just launched on CashApp. Fidelity was adding BTC to 401ks. Developers working in Web3 were at an all-time high. And Facebook was changing its name to Meta.
But nobody could have guessed back then that, close on the horizon, would be a fustercluck of bad news, fraudulent behavior, and blowups
…Not even the coveted, investor-protecting SEC ;).
On a more serious note, we are discussing the terrible, no-good news maelstrom of pain that was 3AC, Luna, FTX, DCG, etc.
All that’s to say, if you haven’t been paying much attention to the crypto space since (and – dare we say – haven’t even been reading your trusty CoinSnacks email), we understand.
But brewing just beneath the surface is something interesting… something that we wanted to alert our readers about right away.
Because while much of the retail investor conglomerate has been ignoring the crypto space, a couple of traditional backdoor crypto stocks are having a breakout year. For example, Coinbase (COIN) and Microstrategy (MSTR) are up 60% and 70% YTD, respectively. And BTC, of course, has also been having an awesome start to the year, with gains of up to 35%.
So, are crypto stocks back?!
We don’t know.
But what we do know is that an alternative backdoor play – with potentially less risk – is beginning to arise.
Bitcoin Bonds
While the FTX fiasco probably led to an increase in accounts at Coinbase, helping solidify their footing in the US market, the ratings' agencies aren’t yet buying it.
Currently, Coinbase’s bonds maturing in ‘26, ‘28, and ‘31 are all yielding more than 10% (junk bond territory).
Not helping the company are rating agencies, Moody’s and S&P Global, downgrading the company’s credit. So while equity holders appear to be bullish on the company, the bond market isn’t so sure.
Before we go deeper though, here’s a quick TLDR of what you should know about bonds: - They are safer than stocks. When a company sells bonds, they are making a promise to pay interest and to repay 100% of the principal. This promise carries the force of law.
- They are simple to value. A bond has only two primary components. First, there's the price, which starts out as "par" and is quoted as being “100.” (Bonds are issued in $1,000 increments so a “100” bond costs $1,000). Second, there’s the coupon, which is quoted as a fraction or a percentage. For example, A $1,000 bond with a 7.5% coupon would pay $75 per year in interest.
The main thing you must remember as a bond investor is that although the bond price might move around, the coupon is fixed. But remember, the bonds are required to pay back 100% of the principal. So if you hold your bonds to maturity (when the principal is repaid), then changes in the bond’s price can be meaningless.
Now, of course, if the company goes bankrupt then the legal guarantees we described above are worth much less. But, because company’s have to pay back bondholders before equity holders, they are still worth something… usually ~$0.40 on the dollar.
Now back to Coinbase’s bonds.
As of the end of Q3 2022, Coinbase had ~$5 billion in cash on hand and $3.4 billion of long-term debt. |
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| If we briefly look at the 3.38% Senior Notes due on October 1, 2028, we can see that Coinbase raised $1 billion of these bonds that pay 3.38% interest until 2028.
Right now, these bonds are trading for $0.58 on the dollar, and have been as low as $0.50.
Due to the discount, if you do the math, these bonds are paying ~14% yield. In other words, if you hold these bonds to maturity (five years), you will receive 14% annually. Not bad.
Now let’s look at another example using Microstrategy (MSTR), courtesy of our friend Porter Stansberry.
Right now, the Microstrategy 2025 Convertible Bond (CUSIP: 594972AC5) trades for around $750. Now, we aren’t going to get into the details about how a convertible bond compares to a normal bond, but according to Porter’s research and similar to our Coinbase bonds above, these instruments offer the potential to generate a very respectable 28% return over the next roughly three years. And that’s in a completely flat BTC price environment. But let’s look at the other scenarios. - In a bullish environment (we are talking $100k BTC prices here), these bonds would stand to make 243%. Bondholders would simply benefit from the stock's appreciation by converting their bonds into shares.
- In a bearish environment (let's say $10k BTC prices), he estimates that investors would still make out with a 17% return. MSTR has a rough $1 billion valuation on its core software business… and with a boatload of BTC on its balance sheet (even at $10k BTC), their intrinsic value would still hover above $2 billion. That’s nearly enough to payback debt holders. And remember, debt holders would get paid first in the case of a liquidation event or bankruptcy – before shareholders receive anything.
📌 By the way, If you are interested in learning more about this strategy, we suggest taking a look at Porter’s new service where he digs into opportunities just like this one.
Putting it all together, investing in MSTR shares only provides the potential upside from the stock’s appreciation, but also carries the risk of default and potential losses. Investing in the convertible bond, however, offers a balance between the potential upside of the stock and the downside protection of the bond.
Now, are we saying you should fill out your entire portfolio with these bonds? Of course not.
We simply want to show our readers – as we have done for the past five years – that to make money in the crypto space, you don’t have to rely on crazy small-cap coins or sketchy public companies.
Looking beneath the surface can allow you to get exposure to BTC with potentially much less risk.
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Paxos Proposes MakerDAO Cap Increase |
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| Two of crypto’s biggest stablecoin players may be teaming up.
On one side, we have Paxos, the issuer of the Pax USD stablecoin. On the other side sits MakerDAO, the issuer of the Dai stablecoin and the 2nd largest DeFi protocol by value managed.
And in the middle is a proposed raising of the Pax USD limit in MakerDAO’s Peg Stability Module (PSM).
The What?
The PSM is how MakerDAO keeps Dai’s value at $1.
Think of the PSM kind of like a bank. Users can deposit other stablecoins into the PSM and receive Dai at a 1:1 ratio. The effect is that Dai is always backed 1:1 by other dollar-pegged assets, allowing Dai to maintain its dollar peg.
And because Dai is such a large stablecoin, the PSM is accordingly also very large, with $3.2 billion currently in the vault.
Why Does Paxos Want This?
The ultimate goal of any stablecoin issuer is to maximize the supply of their stablecoin. In other words, Paxos’s prime directive is to get as many people using Pax USD as possible.
And one popular way to use a stablecoin is to deposit it into the PSM.
The problem for Paxos is that the current maximum amount of Pax USD allowed in the PSM is only $450 million. That’s not a large number for a stablecoin.
But, if the limit is raised to $1.5 billion as Paxos proposed, that could go a long way toward increasing the circulating supply of Pax USD.
Ok, But Why Would MakerDAO Agree?
Two reasons: - In return for raising Pax USD’s PSM cap, Paxos would send MakerDAO monthly payments worth 45% of the effective Federal Funds Rate (the national US interest rate). At current rates, that would amount to $29 million in annual revenue for MakerDAO.
- MakerDAO’s PSM is currently heavily weighted toward USDC. This is widely seen as an existential risk for Maker, as anything happening to USDC, such as a government crackdown, would effectively kill Dai. So, MakerDAO is actively attempting to diversify the PSM. Raising the Pax USD limit would contribute to these efforts.
Why Is This Important?
Dai is the dominant decentralized stablecoin, and it’s not even particularly close.
A strong, more diverse, Dai is in all of our best interests, as should it ever fail, the damage across the DeFi ecosystem would be catastrophic.
Any effort to diversify the PSM is worth celebrating, and Paxos’ is no exception.
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