Crypto Weekly: New year, same contagion Crypto Weekly: New year, same contagion 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 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article
Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
- Full disclaimer (https://www.home.saxo/en-mena/legal/disclaimer/saxo-disclaimer)


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

Contact Saxo

Select region

UAE
UAE

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

Saxo Bank A/S is licensed by the Danish Financial Supervisory Authority and operates in the UAE under a representative office license issued by the Central bank of the UAE.

The content and material made available on this website and the linked sites are provided by Saxo Bank A/S. It is the sole responsibility of the recipient to ascertain the terms of and comply with any local laws or regulation to which they are subject.

The UAE Representative Office of Saxo Bank A/S markets the Saxo Bank A/S trading platform and the products offered by Saxo Bank A/S.