Genesis Has Exposure To The Newly Bankrupt Three Arrows Capital. What Is Happening?

Genesis Has Exposure To The Newly Bankrupt Three Arrows Capital

On Wednesday, Genesis Trading disclosed that it has exposure to the newly bankrupt Three Arrows Capital.

As soon as the cryptocurrency hedge fund failed to fulfill a margin call in June, Genesis liquidated collateral and hedged its downside, according to CEO Michael Moro in a Twitter thread. He continued, but withheld the loan amount, that the firm’s loans to 3AC had a weighted average margin need of above 80%.

Digital Currency Group, the lender’s parent company, has now taken on part of Genesis’ 3AC-related obligations, according to Moro. It is pursuing other strategies to recover any extra losses, he added.

The cryptocurrency sector has been shaken by 3AC’s bad loans, with several lenders disclosing significant losses that caused them to cease withdrawals and trading on their platforms. Voyager, a cryptocurrency lender, declared bankruptcy on Wednesday, weeks after giving the fund a deadline to repay a $657 million debt. Since 3AC itself filed for bankruptcy last week, it is most likely unable to fulfill its commitments.

“A lot of the [crypto industry] players are being brought to their knees,” Mark Connors, 3iQ Digital Asset’s head of research, told Blockworks in an interview.

He cited a high level of leverage as a weakness in the business models of the companies had frozen withdrawals or declared bankruptcy.

“People that use leverage, had a plan to be borrowing short and lending long…that asset-liability mismatch is exactly what Lehman did,” he said.

“There are going to be folks that don’t come back. There’ll be a washing-out, there’ll be a consolidation. There’ll be partnering, and there’ll be new players emerging in crypto.”

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