Chaotic Market Narrative Persists – Genesis, BlockFi, Circle and Grayscale Updates

The crypto market has, on the face of it, recovered from the blow it took as traders and investors alike reacted to the uncertainty emerging following the collapse of the Sam Bankman Fried-led FTX group. Still, the events that have transpired as part of the backwash of the exchange's bankruptcy – itself coming six months after the collapse of the Terra ecosystem – have left some industry players distressed. Notable entities, including BlockFi, Circle and Genesis, have continued making headlines into the new year as more details emerge around the adverse effects they have sustained. Here are the latest developments thus far this week:

Genesis Global optimistic about a quick resolution of its bankruptcy proceedings

Genesis Global Capital (GGC) woes have been compiling since it declared bankruptcy, but the firm is determined to arrive at a resolve as soon as possible, according to a Monday Reuters report. At the initial hearing of the bankruptcy filing, the firm's counsel indicated that the crypto lender is eyeing a speedy resolution with creditors. The lender set a target of May 19 to liquidate its assets through an auction and emerge from the proceedings. Counsel party, Sean O'Neal, told the New York bankruptcy court that they have been engaging in ongoing negotiations with representatives of the company's creditors and the US Trustee's Office for the past two months.

Motions granted in the hearing

Through these arrangements, the lender intends to achieve a mutually agreed upon resolution to the outstanding creditor claims. O'Neal expressed optimism and a level of confidence that a resolution of the dispute would be reached. He, however, noted that should these negotiations prove unsuccessful, the company is also willing to embrace mediation. Brian Rosen, an attorney for the creditors having as much as $1.5 billion in claims, believes the parties involved are approaching an accord. Chris Marcus, representing Gemini and several other creditors, advised Judge Lane that further negotiations are required to achieve alignment among all parties but also expressed cautious optimism that the dispute can be resolved without needing mediation.

Pointing to the privacy interests of Genesis' customers, Judge Lane issued an order that the lender is not required to disclose the names of its creditors and further suggested that the firm takes measures to protect their privacy if their names are later made public, such as cautioning them of possible phishing scams. The judge additionally granted Genesis a number of “first-day” motions, expected of any bankruptcy proceedings – he approved payments to key employees and critical vendors, which are considered necessary to maintain the firm's everyday activities even as the bankruptcy process enrolls.

SEC and IRS are among Genesis' creditors

Initial filings in the bankruptcy process had several names redacted, but a court filing submitted on Monday shows Genesis Global Holdco added the Internal Revenue Service (IRS), the Securities and Exchange Commission (SEC), and the US Attorney's office for the Southern District of New York in its list of creditors. Notably, earlier this month, the SEC filed charges against Genesis Global Capital and crypto exchange Gemini for violating securities laws related to the unregistered offering and sale of securities through the Gemini Earn lending program. The SEC alleged that the Earn product, marketed to retail investors, allowed its customers to lend their crypto assets to Genesis in exchange for interest payments without complying with the registration and disclosure requirements.

GGC International sues BCH advocate Roger Ver for $20.8m in unsettled crypto options

In a separate dealing, GGC International filed a case against vocal Bitcoin Cash proponent, Roger Ver, for failing to settle crypto options worth $20.8 million. The subsidiary GGC claimed in a Monday court filing with the New York State Supreme Court in Manhattan that Ver, who has until Feb 12 to respond, owes $20.8 million in overdue crypt options, which expired on Dec 30. Worth mentioning, this is not the first instance of Ver being sued for unsettled crypto transactions. Last year, he was the subject of an $84 million lawsuit for failing to settle $47 million margin debt to Seychelles-based crypto exchange CoinFlex.

Genesis Global Capital, is itself, at the center of a securities class action lawsuit filed by Connecticut-based law firm Silver Golub & Teitell which represents some affected individuals and entities. The lawsuit, filed against the conglomerate Digital Currency Group and its founder Barry Silbert, detailed that the group violated securities laws by executing lending agreements constituting unregistered securities offering without seeking exemption from registration under Federal laws. The plaintiffs also alleged intentional securities fraud through misleading declarations in the Jan 23 complaint.

Bankrupt BlockFi wants to liquidate $160 million of its miner rig-backed loans

In another closely-tied revelation, Bloomberg reported on Monday that bankrupt lender BlockFi has been endeavoring to liquidate $160 million worth of loans backed by Bitcoin mining machines. The news comes at a time when the loans have likely become under-collateralized owing to a massive decline in prices in crypto and, subsequently, the value of the mining equipment. The bids reportedly started last year, and the sale is part of BlockFi's bankruptcy proceedings.

BlockFi rushes to retain talent, despite wanting financials

BlockFi's Chief People Officer, Megan Cromwell, recently cautioned that unless the court approves a retention petition filed last November, the company may see further additions to the 11 talented employees it has already lost.

In the Monday filing, Cromwell asked the bankruptcy court to allow it to offer certain employees retention bonuses of up to 50% to prevent the hemorrhage of talent since the petition was filed. The BlockFi executive decried that while the extensions were to allow for fruitful conversation with the US Trustee and the established creditors' committee, it was suffering from personnel loss. However, both the US Trustee and the committee rejected the filing.

Unredacted documents around BlockFi's dispute previous disclosure

Meanwhile, material containing uncensored BlockFi financials meant for demonstration released on Tuesday by mistake showed that half of all its assets are tied to FTX, contradicting previous disclosures. The report detailed the firm had assets worth $831.3 million loaned out to Alameda and others worth $415.9 million frozen on FTX.  Though the discrepancy has been partially attributed to Bitcoin price's recent northward action, the unintentional revelation indicates that there could be more to FTX Group's relationship with BlockFi.

Source: CBNC

The SBF-led exchange extended a $400 million line of credit to BlockFi at the time it was recovering from the collapse of crypto hedge fund 3AC, to which it had exposure. The credit facility, attracting an interest of 5%, had an expiry at the end of June 2027 and has entailed a clause for FTX US to buy BlockFi for as much as $240 million. The report unintentionally released by M3 Partners also showed that the digital assets lender had 662,427 customers when it caved in.

Grayscale's oral hearing date set, counsel celebrates earlier timeline

Digital asset manager Grayscale is set to present its oral arguments to the US appeals court (District of Columbia) in its lawsuit against the SEC on Mar 7 as per Jan 23 filing. Grayscale sought to convert its flagship Grayscale Bitcoin Trust (GBTC) into an exchange-traded fund, but its application was rejected.

“It's important to remind the role that regulators like the SEC play when it comes to investors. They're not here to tell investors what to or what not to invest in. They're here to ensure all the proper disclosures are made,” CEO Michael said in a Jan 24 interview on CNBC's Squawk Box.

The asset manager received the confirmed ruling on Monday, which Grayscale's legal officer described as a welcomed disclosure because it anticipated to deliver the same in the second quarter at the earliest.

Source: Grayscale

The argument panel for the oral hearing is expected to be revealed in two weeks.

Circle faults SEC for its failed plan to go public

The SEC has also been denounced by Circle, the issuer of the USD Coin stablecoin, whose executives say it is to be blamed for the financial and payments tech company not progressing with its plans to go public. CEO Jeremy Allaire previously revealed in a December tweet that the crypto payments company had failed to complete the qualification process specified by the market regulator in time. A late Tuesday report by Financial Times confirmed the same, adding that the stablecoin operator accuses the commission of failing to sign off on the arrangements.

“The business combination could not be consummated before the expiration of the transaction agreement because the SEC had not yet declared our S-4 registration ‘effective',” a person familiar with the matter told FT.

Circle first revealed plans to seek a public listing in July 2021 at the time, having half its current valuation, $4.5 billion. Following its February 2022 deal with special purpose acquisition company Concord Acquisition, the company's valuation doubled. The company explicitly faulted the SEC while ruling out the poor state of the market and negative sentiment around it as potential reasons for the failure of the deal to materialize.

Celsius approved to process some customer withdrawal requests

In a separate development on Tuesday, crypto lending firm Celsius received a green light from the Bankruptcy Court for the Southern District of New York to process certain customer withdrawals. A court order filed and signed by Judge Martin Glenn on Tuesday approved the lender to handle the withdrawal of funds sent to the platform after it filed for bankruptcy protection last July.

Transfers involving more than $40,000 will be subject to approval by a committee of creditors. This will also apply to cases where the transferor received more than $200,000 from the platform 90 days before the bankruptcy petition submission. In a Tuesday hearing, Celsius Networks' lawyers tabled a proposition to return funds to customers and other creditors. The US Trustee's Office hasn't remarked on the same.

Digital Surge gets relief following approval of its rescue plan

In a rare outturn for a ‘casualty' of the FTX fiasco, Australia-based cryptocurrency exchange Digital Surge has pulled round after getting creditors' approval on its bail-out plans on Tuesday. The previously troubled exchange, which is based in Brisbane, had $ 32.4 million locked on the FTX exchange at the time of its collapse in November, later passing into voluntary administration on Dec 8 under a Melbourne-based advisory and investment firm.

“Customers will be repaid in cryptocurrency and fiat currency, depending on the asset composition of their individual claims,” KordaMentha clarified in a statement.

An estimated 22,550 exchange users were affected when the exchange halted services to its Aussie customers less than a week after FTX's financial troubles came to light. The long-term recovery plan which entails a loan from an associated business Digico according to a deed of company arrangement (DoCA), will help creditors recover their funds. The plan to recover from the blow was initiated in December and was assented to in the second meeting of creditors. Customers with balances below $250 will receive full reimbursement, while others will be repaid 55 cents to their dollar over five years. The exchange's quarterly net profits will be used to settle these repayments.