Barry Silbert, founder of crypto group Digital Currency Group, has joined a growing list of industry leaders trying to calm investors’ nerves in the wake of FTX’s sudden collapse.
In a note to shareholders on Tuesday, Silbert addressed all the “noise” about the financial health of DCG’s subsidiaries, including trading company Genesis, Grayscale Investments and mining company Foundry.
Since FTX’s swift shutdown two weeks ago, investors have worried about crypto contagion affecting every corner of the industry. Lenders have stopped lending, withdrawals have become more difficult and unpredictable, and lesser-known tokens have plummeted in value. The major cryptocurrencies, bitcoin and ether, have also continued their year-long decline.
Silbert, an early bitcoin evangelist who founded DCG in 2015, said that despite this year’s crypto winter, the entire company is on track to hit $800 million in revenue, having since its raised only $25 million in primary capital at the time of incorporation. is behind. Forbes has estimated Silbert’s net worth at $2 billion.
“We survived the past crypto winter,” wrote Silbert, “even if it feels bleaker, we will come out of it stronger together.”
Coinbase, Binance, and Crypto.com have done their best to address customer concerns to avoid FTX-like runs on customer deposits. Each of them expressed shock at FTX’s apparent deception of investors and clients, stressing that clients’ assets are safe.
All in the knowledge that FTX and founder Sam Bankman-Fried have betrayed the trust of an industry already in the midst of a brutal year of losses. Bankman-Fried said her company’s assets were “fine” two days before she became desperate for a bailout due to a lack of liquidity.
For DCG specifically, investor confidence took a hit last week when the Wall Street Journal reported that Genesis attempted to raise $1 billion from investors before finally halting some withdrawals. There were reports that Genesis would soon file for bankruptcy, which the company publicly denied.
The fear spread to Grayscale Bitcoin Trust, known by its ticker GBTC, which gives investors exposure to Bitcoin through more traditional securities. GBTC is currently trading at a 42% discount to Bitcoin, up from a nearly 30% discount two months ago.
Regarding Genesis’ lending business, Silbert said in the letter that the Nov. 16 suspension of repayments and loan renewals was a “liquidity and maturity mismatch issue” in the loan book. He added that these issues have “no impact” on Genesis’ spot and derivatives trading or custody business, which “are continuing as normal.”
He acknowledged that Origin has hired financial and legal advisors while the company evaluates its options.
DCG’s debt is just over $2 billion. The Company provided Genesis with a loan of approximately $575 million at “market interest rates” maturing in May 2023. It also assumed $1.1 billion in debt it owed to bankrupt crypto hedge fund Three Arrows Capital for lending.
Since Three Arrows has filed for bankruptcy, DCG is pursuing “all available legal remedies to recover assets on behalf of creditors,” Silbert wrote. DCG’s only other debt is a $350 million line of credit from “a small group of lenders led by Eldridge.”
Read Silbert’s full letter below:
There has been a lot of talk over the past week and I want to get back to you directly to clarify where we stand at DCG.
Most of you are aware of Genesis’ situation, but briefly about the future: Genesis Global Capital, Genesis’ lending business, temporarily suspended repayments and issuance of new debt following the market turmoil last Wednesday, November 16th. Origin generated unprecedented withdrawal requests. This is a liquidity and maturity mismatch issue in the Genesis loan book. Importantly, these issues will not impact Genesis’ spot and derivatives trading or custody business, which will continue to operate as normal. Genesis leadership and its board of directors have decided to hire financial and legal advisors and the company is evaluating all possible options amid the FTX infusion.
In the past few days there have been talks between Genesis Global Capital and DCG regarding intercompany loans. For those unaware, in the ordinary course of business, DCG has borrowed money from Genesis Global Capital in the same manner as hundreds of other crypto investment firms. These loans have always been structured at arm’s length terms and priced at arm’s length interest rates. DCG currently has approximately $575 million in debt to Origin Global Capital maturing in May 2023. These loans were used to fund the investment opportunity and to repurchase DCG stock from non-employee shareholders, as highlighted in the first quarterly shareholder update. And to date I have never sold a single piece of my DCG stock.
You may also recall that a $1.1 billion promissory note is due in June 2032. As we communicated in our previous letter to shareholders in August 2022, DCG has stepped in and assumed certain liabilities arising out of the Three Arrows Capital default. Now that the debt is DCG, as indicated in August, DCG is participating in Three Arrows Capital’s liquidation proceedings on the creditors’ committee and is pursuing all available legal remedies to recover the assets for the benefit of the creditors. Aside from Genesis Global Capital’s intercompany loan and long-term promissory note, which matures in May 2023, DCG’s only debt is a $350 million credit facility from a small group of lenders led by Eldridge.
Let me step back and say it very clearly: DCG will remain the industry’s leading developer, and we remain committed to our long-term mission of accelerating the development of a better financial system. We weathered past crypto winters, and while this may feel harsher, we will emerge stronger together. DCG just raised $25 million in seed capital and we are on track to hit $800 million in revenue this year.
I bought my first bitcoin over a decade ago in 2012 and decided to make a long-term commitment to this industry. In 2013, we founded the first BTC trading company – Genesis – and the first BTC fund, which grew into Grayscale, now the world’s largest digital currency wealth manager. The Foundry operates the largest bitcoin mining pool in the world and is building the decentralized infrastructure of tomorrow. CoinDesk is the industry-leading media, data, and events company, and they’ve done a phenomenal job this crypto winter. Luno is one of the most popular crypto wallets in the world and an industry leader in emerging markets. TradeBlock is building a seamless institutional trading platform and as a recent addition, HQ is establishing a life and wealth management platform for digital asset entrepreneurs. Each of these subsidiaries is a separate company, independently managed and operated as usual. Finally, with a portfolio of over 200 companies and funds, we often conduct first-hand research into the best founders in the industry.
We appreciate your words of encouragement and support and your offers to invest in DCG. We will inform you if we decide on a financing round.
Despite the challenging conditions in the industry, I remain excited about the potential of cryptocurrencies and blockchain technology in the decades to come, and DCG is determined to be at the forefront.
Watch: Grayscale files lawsuit against SEC over Bitcoin ETF rejection