The monumental collapse of FTX didn’t just destroy a crypto exchange and wipe out billions in customer deposits — it also exposed accounting irregularities at Barry Silbert’s empire, the Digital Currency Group, or DCG. That’s according to Bitcoin (BTC) billionaire and Gemini co-founder Cameron Winklevoss. The FTX blow-up caused Genesis Global Trading, another DCG firm, to pause new loan originations and redemptions—a decision that directly affected Winklevoss’ Gemini Earn program. The pause on withdrawals has been active for nearly two months, prompting Winklevoss to pen two open letters addressed to Silbert and DCG’s board. The second open letter, published this week, claimed that Silbert was “unfit” to run DCG and that there would be no way forward with him at the helm.
In a follow-up to last week’s Crypto Biz newsletter, this week’s agenda again focuses on the dispute between Winklevoss and Silbert. We also chronicle Coinbase’s latest playoffs and the status of Voyager’s sale to Binance.US.
FTX’s monumental collapse not only destroyed a cryptocurrency exchange and wiped out billions in client deposits, it also exposed accounting irregularities at Barry Silbert’s empire, Digital Currency Group, or DCG. According to Bitcoin (BTC) billionaire and Gemini co-founder Cameron Winklevoss. The FTX outburst caused Genesis Global Trading, another DCG firm, to pause new loan issuances and swaps, a decision that directly affected Winklevoss’s Gemini Earn program. The suspension on withdrawals has been in place for nearly two months, prompting Winklevoss to write two open letters to Silbert and the DCG board. The second open letter, published this week, claimed that Silbert was “unfit” to lead DCG and that there would be no way to reach a solution with him at the helm.
Following up on last week’s Crypto Biz, this week’s issue focuses again on the Winklevoss vs. Silbert feud. We also chronicle the latest layoffs at Coinbase and the status of the Voyager sale to Binance.US.
Cameron Winklevoss: “There is no way to reach a solution while Barry Silbert remains CEO of DCG”
In a four-page letter to the DCG board of directors, Winklevoss claims Silbert, DCG and Genesis orchestrated “a carefully crafted campaign of lies” to hide a $1.2 billion hole in Genesis’ balance sheet after the bankruptcy of Three Arrows Capital (3AC). Once 3AC went bust, Silbert had two choices: restructure Genesis’ loan wallet or plug the hole. According to Winklevoss, Silbert did neither and pretended to inject new funds into the loan company. Winklevoss also alleged that there were “recursive operations” between 3AC and Grayscale Bitcoin Trust (GBTC), effectively amounting to Bitcoin for GBTC “exchange transactions” by Genesis. “These misrepresentations […] were a sleight of hand designed to make it appear that Genesis was creditworthy and able to meet its obligations to the lenders without DCG committing to provide the financial support necessary to make this true,” Winklevoss said.
Earn Update: An Open Letter to the Board of @DCGco pic.twitter.com/eakuFjDZR2
— Cameron Winklevoss (@cameron) January 10, 2023
Digital Currency Group’s legal problems seem to be increasing as the federal prosecutors in New York begin to examine its internal operations. According to Bloomberg, authorities are investigating internal transfers between DCG and its subsidiary Genesis Global Capital and have requested interviews and documents from the companies. According to a person familiar with the matter, the US Securities and Exchange Commission is also part of the investigation. Genesis losses began to pile up after the bankruptcy of the hedge fund Three Arrows Capital. Since then, there has been speculation about the insolvency of DCG.
Coinbase will cut another 20% of its workforce in a second wave of layoffs
Looking for a career in crypto? Now is probably not the best time as bear market casualties continue to mount. This week, crypto exchange Coinbase announced it would slash its workforce by another 20% to curb operational costs. Coinbase laid off about 18% of its staff in June before the FTX collapse dealt the industry an unexpected blow, resulting in another round of mass firings. CEO Brian Armstrong gave the usual assurance that Coinbase would emerge stronger in the future. In reality, it could take years before mainstream investors even look at digital assets again.
Do you want to start your career in the cryptocurrency sector? Now is probably not the best time, as the lows in the bear market continue to increase. This week, C.oinbase announced that it would reduce its staff another 20% to reduce operating costs. Coinbase laid off about 18% of its workforce in June, before the FTX collapse dealt an unexpected blow to the industry, which triggered another round of mass layoffs. The CEO, Brian Armstrong, assured as always that Coinbase would be strengthened in the future. But in reality it could be years before mainstream investors turn their attention to digital assets again.
Voyager-Binance.US deal gets initial go-ahead amid national security investigation
Binance.US’ proposed acquisition of Voyager Digital is getting closer to fruition after a bankruptcy judge in New York allowed the bankrupt crypto lender to enter into an asset purchase agreement and seek creditor approval of the sale. At the same time, Voyager has been fielding questions from the Committee on Foreign Investment in the United States (CFIUS), which presumably has some concerns about the transaction. The CFIUS is an inter-agency body tasked with reviewing foreign acquisitions of US companies on national security grounds. Voyager’s sale to Binance.US was initially agreed upon in December 2022 for $1.022 billion.
Binance.US’s proposed acquisition of Voyager Digital is moving closer to fruition after a New York bankruptcy judge allowed the bankrupt cryptocurrency lender to sign an asset purchase agreement and request the approval of the sale by the creditors. At the same time, Voyager has been receiving questions from the Committee on Foreign Investment in the United States (CFIUS), which presumably has some concerns about the transaction. CFIUS is an interagency body tasked with reviewing foreign acquisitions of US companies for national security reasons. The sale of Voyager to Binance.US it was initially agreed in December 2022 for USD 1,022 million.
Before you go: Is the end of the bear market beginning?
Bitcoin and the broader cryptocurrency market enjoyed a rare rally earlier this week, prompting cautious optimism that the worst of the recession was over. Has the cryptocurrency market bottomed out or can we expect more pain in the near future? In this week’s Market Report, I sat down with fellow analysts Marcel Pechman and Joseph Hall to discuss whether there’s room for optimism after the latest rally (if you can call it that). You can watch the full recording below.
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