Cryptocurrency lender Genesis Global Capital is planning to file for bankruptcy as soon as this week, Bloomberg News reported on Wednesday, citing people with knowledge of the situation.
A bankruptcy filing has been expected for weeks, after the company froze customer redemptions on Nov. 16 following the downfall of major cryptocurrency exchange FTX.
The collapse of FTX in November has claimed several victims including crypto lender BlockFi and Core Scientific Inc , one of the biggest publicly traded crypto mining companies in the United States, both of which filed for bankruptcy protection in the following months.
Genesis, its parent Digital Currency Group and creditors have exchanged several proposals, but have so far failed to come to an agreement, the Bloomberg report said, adding that Kirkland & Ellis and Proskauer Rose have been advising groups of creditors.
Genesis did not immediately respond to a Reuters request for comment.
Genesis is also locked in a dispute with Gemini, founded by the identical twin crypto pioneers Cameron and Tyler Winklevoss.
Gemini offered a crypto lending product called Earn in partnership with Genesis, and now says Genesis owes it $900 million in connection with that product.
The U.S. Securities and Exchange Commission last week said it had charged Genesis and Gemini with illegally selling securities to hundreds of thousands of investors through their crypto lending program.
The difficulty for crypto investors is that different platforms and exchanges are connected in many ways. It’s difficult to know what shockwaves will follow from a Genesis bankruptcy, and whether more companies will follow. Crypto prices, which had nudged upwards in the past week, dropped on the news. Bitcoin (BTC) had pushed above the $21,000 mark for the first time since November, but it fell 4% after the Bloomberg story broke.
If you own cryptocurrency, it’s important to think about where your assets are stored. Many people keep their digital currencies on the crypto exchange where they bought them. It’s more convenient and several platforms offer a number of ways to earn interest on your assets. Unfortunately, crypto exchanges do not offer the same protections as a bank or brokerage firm.
It’s important to understand the risks:
- Crypto exchanges: If the crypto exchange you use goes bankrupt or is hacked, your funds could be at risk. Some platforms offer third party insurance, but usually only against crime. Some also offer FDIC insurance on dollar deposits, but crypto is not covered.
- Crypto earn products: If you use a crypto lending product, make sure you understand how the interest is generated and who owns your assets. For example, the Gemini Earn terms and conditions state that assets will leave its custody, which is why users can’t access their funds.
The best way to ensure your crypto does not get tied up in bankruptcy proceedings is to move your funds to a wallet you control. There can be a learning curve in understanding how crypto wallets work and you are taking on full responsibility for your funds. If you lose the password or security phrase, you may not be able to access your assets.
