November 23, 2022 | Issue #246

Sponsored By:

Editor's Note: Happy Turkey Break. We hope all of you have a great holiday. Spend some time with your family or friends... pour a little extra gravy... and don’t talk too much about crypto or politics!

MUST READS

The Future Is Still Bright

The month of November has turned out to be yet another painful month for investors. Making matters worse (more details below), crypto lending desk Genesis, investment firm DCG, and asset manager Grayscale are seemingly now hanging on by a thread as the carnage continues.

This is the point in the bear market where it’s really not fun to be in crypto.

Money is hard to come by. The skeptics are dunking on us relentlessly. And for many of you, it probably feels like this whole thing was just one big bubble after all.

On that note, we’re not going to dabble too much into the doom posting today.

Instead, we want to take this time to remind you all that, despite 2022s setbacks, the future of crypto is still bright. In fact, we’re more confident in crypto than ever before.

Why?

Because Alex Mashinsky, SBF, Su Zhu, and Kyle Davies – and everyone else involved in the recent crypto collapses – are not representative of true crypto. They are merely opportunists (and criminals) who attempted to use crypto as their get-rich-quick platform and failed.

In no world does their failures mean that crypto has failed. It’s actually the exact opposite.

Decentralized finance has held sturdy throughout all of 2022s turbulence. Uniswap has continued processing orders. Aave and Compound aren’t bankrupt. DAI is still worth $1. Ethereum is still online.

It doesn’t matter which way you slice it; DeFi outperformed centralized crypto this year. That in itself marks a turning point in crypto’s story. We now have proof that we don’t need people like SBF to hold our hands. Why would you when DeFi does it better than him anyway?

And thank God it does, because crypto’s mission is still crucially important.

Fiat money is still being mismanaged to the tune of hyperinflation. Governments are still weaponizing control of bank accounts to subdue protests. The financial system is still value-extractive and inaccessible to most of the world.

Lost in the sea of 2022s lousy news is that crypto has been addressing these issues. It’s become “basically a savior” in countries crippled by inflation, such as Turkey. It’s enabled political activism in repressive regimes. And it’s growing ever more popular in developing countries.

The world still needs decentralized, transparent, and credibly-neutral money. We believe crypto will fill that void. And now is not the time to abandon that vision.

There’s no reason to worry too much about short-term price drops from bad actors. As crypto fulfills its mission, the prices will follow.

Don’t lose faith just yet.

SPONSORED

TheHop, MOVE Estrella Galicia’s digital innovation program makes the leap to the Web3

In its fifth edition, TheHop will focus on WEB 3, searching the entrepreneur ecosystem for use cases related to Metaverse, Tokenization of assets, Cryptocurrencies, NFTs, and DAOs.

The fourth edition of TheHop comes to a close this year, ending a cycle of 4 editions in which more than 35 pilot projects were undertaken in Spain and Brazil, with different startups, companies, and organizations such as MIT, IE Business School, Amazon Web Services (AWS), among others, and partnering with the innovation consultancy Valhalla.

The evolution of TheHop has been unstoppable, adapting to the needs and opportunities of the company and the market. For this reason, now in its fifth edition, TheHop goes one step further and launches the TheHop Web3 Ventures program, the Web3 innovation vehicle of MOVE Estrella Galicia Digital. Through this program, Estrella Galicia will approach this new ecosystem and explore the opportunities it can bring to the company.

The aim of TheHop Web3 Ventures is to develop new internal capacities, explore the new opportunities potentially offered by Web3 and co-create different initiatives with companies that are key in the Web3 ecosystem in areas such as NFTs, cryptocurrencies, tokenization, DAOs, and Metaverse, using the methodology, network and learning obtained through TheHop.

Gerard Gracia, Head of Digital Business Innovation at MOVE Estrella Galicia Digital, highlights:

“TheHop Web3 Ventures starts this new adventure once again accompanied by the consultancy Valhalla and by three collaborators that are key in this sector, Telefónica Tech, Bit2Me and AWS, and will be incorporating new allies in the coming months. Any Web3 company will be able to connect with TheHop through its new website to propose projects to bring value to the initiatives we are to undertake. Once they have been evaluated, we will approach each of them based on the needs of each project."

During 2023 we will be able to see the first Web3 projects promoted by TheHop, so we will keep an eye on the different initiatives that are being developed. To learn more, visit: https://thehop.xyz/

DEEP DIVES

Genesis and DCG In Trouble

While the future remains bright, we couldn't help but to remind readers that more short-term pain is likely on the horizon as the FTX and 3AC contagion continues.

The latest potential victim is the prominent crypto lending desk, Genesis.

Genesis is crypto’s largest prime broker, reaching a peak of $14.6 billion in loans in March. Unfortunately, it has recently fallen on hard times with the Luna, 3AC, and FTX collapses and now stands on the brink of bankruptcy.

If you think that’s not bad enough, don’t worry, it gets much worse. Genesis is owned by Digital Currency Group (DCG), which is very much indebted to Genesis. DCG also happens to be the owner of the Grayscale Bitcoin Trust (GBTC). This has led to fears that DCG will have to dump the Grayscale Bitcoin if Genesis goes under.

Long story short, it’s a mess. So let’s try to make some sense of it.

A String Of Bad Luck
It’s hard to have a worse year than Genesis in 2022.

The trouble began with 3AC. Genesis had loaned 3AC $1.1 billion, and when 3AC went bust, that money went with it. In response, DCG lent Genesis the money to cover the loss with a June 2023 due date.

Next, Genesis took a $175 million loss from FTX. Again, DCG came to the rescue, this time with a $140 million equity infusion.

These are both horrible events in their own right, but they become much worse when they occur under a bear market that has decimated Genesis’s lending business, now only worth $2.8 billion.

Liquidity Crisis and Potential Bankruptcy
Following the FTX debacle, people were understandably spooked by centralized crypto entities and rushed to get out.

Unfortunately, Genesis no longer had the liquidity to cover all the withdrawals. As a result, they had to pause withdrawals and look to raise fresh liquidity.

By this point, you should know that pausing withdrawals is as certain a death sign as possible. It was the case with Celsius, FTX, and now unless they raise new money, Genesis.

Unfortunately, it doesn’t look like that new money is coming, as Genesis has hired the investment bank Moelis to explore bankruptcy.

The Contagion
So, here’s where it gets scary.

As we established in the intro, Genesis is owned by DCG. According to CEO Barry Silbert, DCG is currently $1.675 billion in the hole to Genesis. $1.1 billion from covering the 3AC loss, and $575 million from an earlier intercompany loan.

That’s an awful lot of money, and it doesn’t look like DCG alone will be able to cover it by normal means.

The only thing that they can really do to cover the hole is to unwind the Grayscale Bitcoin Trust. In this scenario, 633,000 Bitcoin would hit the market, crashing the price so much that a liquidation cascade would almost surely follow.

Thankfully, we’re not there just yet. DCG and Genesis might still be able to raise money… but it’s getting late.

TWEET OF THE WEEK

The Future Is Still Bright

TheHop, MOVE Estrella Galicia’s digital innovation program makes the leap to the Web3

Genesis and DCG In Trouble

Other Content You Might Enjoy