Crypto Weekly: New year, same contagion

Crypto Weekly: New year, same contagion

Mads Eberhardt

Cryptocurrency Analyst

Summary:  The crypto market was troubled by contagion throughout much of 2022. It is safe to say that the market has so far extended this chaotic environment to 2023, as Genesis Trading has not yet reopened withdrawals for its lending division and Silvergate Bank incurred a loss of $718mn in Q4 and cut staff by 40% last week.


Gemini goes head-to-head with Digital Currency Group (DCG)

We are not two weeks into 2023, but it is safe to say that the crypto market has so far extended the chaotic environment of 2022 to 2023 considering that the contagion continues.

The ongoing contagion was obvious as early as January 2nd, at what time co-founder of crypto exchange Gemini, Cameron Winklevoss, posted an open letter on Twitter to the founder and CEO of Digital Currency Group (DCG) named Barry Silbert. DCG is the sole owner of institutional-focused trading firm Genesis Trading. Before November, Genesis was one of the largest crypto financial service providers on lending, market making, and prime brokerage. Following the loss of up to $1.2bn to bankrupt hedge fund Three Arrows Capital in May 2022 and $175mn stuck on FTX in November 2022, Genesis is at best facing a liquidity crisis but potentially insolvency.

This caused Genesis to halt withdrawals for its lending division in November. The halting of withdrawals includes more than $900mn originating from 340,000 clients of the Gemini Earn lending program facilitated by Genesis. Since Genesis halted withdrawals, these clients have not had access to their funds to great frustration to the clients and Gemini. Although it appears that merely Genesis is obligated to reimburse clients, the reputation of Gemini is at risk, so the firm is trying to seek a solution as soon as possible. Yet, according to Winklevoss, Genesis is not greatly interested in achieving a solution. In the open letter, Winklevoss accuses Silbert of “bad faith stall tactics” and states that “time is running out” for Genesis to return the $900mn to the clients of Gemini Earn. He ends the letter by saying that they seek a public commitment from Silbert to solve the problem by January 8th. Winklevoss does not state the consequence if not. There is currently no update.

Besides owning Genesis, DCG owns the largest crypto asset manager Grayscale, which has seen its funds trade at a steep discount of up to 60% of the underlying asset partly due to concerns over the financial health of the whole organization. Another reason is that Grayscale cannot redeem shares of its funds to keep them from trading at a discount to the underlying asset. So not only is the future unclear for Genesis, it is likewise unclear for the moneymaker of DCG namely Grayscale due to hefty management fees for its funds. We wrote about the uncertainties about Grayscale in our 2023 Crypto Outlook.

Silvergate Bank was not spared from the contagion

The contagion does not end with Genesis. On Thursday, US crypto bank Silvergate announced that it incurred a loss of $718mn by selling debt as it faced a liquidity crisis in the fourth quarter. In addition, the bank has cut its staff by 40% and written off its $182mn acquisition of Meta’s Diem project it carried out early last year. To make matters worse, Moody’s downgraded the bank’s ratings following its recent financials. Silvergate banks almost every major exchange and crypto institutional investor, so its significance for the ecosystem should not be underestimated. The stock is down by around 32% year to date.

Source: Saxo Group
Source: Saxo Group

Quarterly Outlook

01 /

  • Equity outlook: The high cost of global fragmentation for US portfolios

    Quarterly Outlook

    Equity outlook: The high cost of global fragmentation for US portfolios

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: Commodities rally despite global uncertainty

    Quarterly Outlook

    Commodity Outlook: Commodities rally despite global uncertainty

    Ole Hansen

    Head of Commodity Strategy

  • Upending the global order at blinding speed

    Quarterly Outlook

    Upending the global order at blinding speed

    John J. Hardy

    Global Head of Macro Strategy

    We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ...
  • Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Quarterly Outlook

    Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Jacob Falkencrone

    Global Head of Investment Strategy

  • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    Quarterly Outlook

    Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    John J. Hardy

    Global Head of Macro Strategy

  • Equity Outlook: The ride just got rougher

    Quarterly Outlook

    Equity Outlook: The ride just got rougher

    Charu Chanana

    Chief Investment Strategist

  • China Outlook: The choice between retaliation or de-escalation

    Quarterly Outlook

    China Outlook: The choice between retaliation or de-escalation

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: A bumpy road ahead calls for diversification

    Quarterly Outlook

    Commodity Outlook: A bumpy road ahead calls for diversification

    Ole Hansen

    Head of Commodity Strategy

  • FX outlook: Tariffs drive USD strength, until...?

    Quarterly Outlook

    FX outlook: Tariffs drive USD strength, until...?

    John J. Hardy

    Global Head of Macro Strategy

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

Content disclaimer

None of the information provided on this website constitutes an offer, solicitation, or endorsement to buy or sell any financial instrument, nor is it financial, investment, or trading advice. Saxo Bank A/S and its entities within the Saxo Bank Group provide execution-only services, with all trades and investments based on self-directed decisions. Analysis, research, and educational content is for informational purposes only and should not be considered advice nor a recommendation.

Saxo’s content may reflect the personal views of the author, which are subject to change without notice. Mentions of specific financial products are for illustrative purposes only and may serve to clarify financial literacy topics. Content classified as investment research is marketing material and does not meet legal requirements for independent research.

Before making any investment decisions, you should assess your own financial situation, needs, and objectives, and consider seeking independent professional advice. Saxo does not guarantee the accuracy or completeness of any information provided and assumes no liability for any errors, omissions, losses, or damages resulting from the use of this information.

Please refer to our full disclaimer and notification on non-independent investment research for more details.


Business Hills Park – Building 4,
4th Floor, office 401, Dubai Hills Estate, P.O. Box 33641, Dubai, UAE

Contact Saxo

Select region

UAE
UAE

All trading and investing comes with risk, including but not limited to the potential to lose your entire invested amount.

Information on our international website (as selected from the globe drop-down) can be accessed worldwide and relates to Saxo Bank A/S as the parent company of the Saxo Bank Group. Any mention of the Saxo Bank Group refers to the overall organisation, including subsidiaries and branches under Saxo Bank A/S. Client agreements are made with the relevant Saxo entity based on your country of residence and are governed by the applicable laws of that entity's jurisdiction.

Apple and the Apple logo are trademarks of Apple Inc., registered in the US and other countries. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.