Genesis Halts Withdrawals As FTX-Induced ‘Crypto Contagion’ Spreads

Crypto has gone from a winter to a contagion.

Crypto lender Genesis said Wednesday it is suspending withdrawals and new loans after the dramatic collapse of crypto exchange FTX. 

“This decision was made in response to the extreme market dislocation and loss of industry confidence caused by the FTX implosion,” Genesis’ parent company Digital Currency Group said on Twitter.

The announcement comes just days after New York-based Genesis sent a letter to its clients letting them know it was able to secure an equity infusion of $140 million from Digital Currency Group. Genesis said it had about $175 million of assets locked away on FTX’s exchange — as reported by The Block.

Genesis also had significant exposure to Singapore crypto hedge fund Three Arrows Capital (3AC) which filed for bankruptcy in the summer and led the crypto market into turmoil in July. 

The news started a domino effect, as also on Wednesday following Genesis’ announcement Cameron and Tyler Winklevoss’ Gemini said it would halt redemptions. Genesis was a partner.

“The past week has been an incredibly challenging and stressful time for our industry,” Gemini officials wrote in a blog post.

The situation is not dissimilar to the ripple effect 3AC’s bankruptcy had on the industry this summer, as the hedge fund’s collapse led to the fall of companies like Celsius Network and Voyager Digital.

FTX’s demise likely will have significantly greater effects.

Lawsuit filed

FTX’s legal problems also mounted, as late Tuesday a proposed class-action lawsuit was filed in Miami alleging FTX’s yield-bearing accounts were unregistered securities.

The suit was first reported by The Block.

The lawsuit seeks unspecified damages from FTX co-founder and CEO Sam Bankman-Fried and nearly a dozen athletes and celebrities who promoted FTX.

Those named include Tampa Bay Buccaneers quarterback Tom Brady, Brazilian model Gisele Bündchen, tennis player Naomi Osaka, basketball star Steph Curry, and the Golden State Warriors.

FTX went big on advertising this year, using big-name entertainers to push its exchange. The company even aired an ad during the 2022 Super Bowl — telling viewers “Don’t Miss Out on Crypto.”

Help on the way?

In an effort to stop the destruction being caused by FTX’s fall, Binance CEO Changpeng Zhao told CNBC he would be establishing a recovery fund to help people in the industry.

“We want the strong industry players today to protect the good industry players who might just be hurt short term,” said Zhao, who did not specify an exact figure for the recovery fund.

Zhao also said in the interview he did not expect recent events to cause long-term damage.

Related reading

Read our coverage of all the FTX-related events and more below:

• Binance Signs Letter Of Intent To Buy FTX.com
• Binance-FTX Deal A No-Go
• Just Like FTX, FTX Ventures Went Big — And Fast — When It Came To Investing
• After The FTX Collapse, This May Be A Good Time For VCs To Start Using ‘Common Sense’ Again
• FTX Collapse Will Reverberate Throughout The VC World For A Long Time

Illustration: Dom Guzman

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