Multiple crypto firms are still contending with tight liquidity despite the market recovery to the $1 trillion mark. The 2022 crypto winter and industry shortcomings forced many firms to limit expenses while others closed shop altogether.
Through a letter to investors, Digital Currency Group (DCG) shared that they would not give their quarterly dividend to their investors until further notice.
The crypto firm attributed the move to preserving liquidity, among other measures, to reduce operating costs.
Digital Currency Group is a conglomerate of crypto firms with investments in over 200 companies. The conglomerate is known for its push for the first public BTC fund, Coindesk, and the first bitcoin mining pool. The firm has also funded multiple crypto protocols, blockchain protocols, and emerging fund managers.
Many crypto firms have been under pressure to navigate the unprecedented industry-wide turmoil and waning investor sentiment for crypto after the FTX exchange collapsed.
The crypto firm fell into trouble after one of its subsidiaries, Genesis Global Capital, lent out funds (about $2.36 billion) to the now-bankrupt three arrows capital. The situation put Digital Currency Group and its CEO Garry Silbert in a tight spot with Genesis lenders, to who it owes about $3 billion.
To maintain a stable balance sheet, the crypto firm laid off multiple employees and winded down an HQ fund manager with allegedly managed $3.5 billion of investor funds as of December.
Its subsidiary Genesis capital has also laid off over 30% of its employees, with analysts predicting that the firm could file for bankruptcy soon.
Multiple allegations and demands have arisen from the sides, with Gemini’s Cameron Winklevoss emerging as the most prominent complainant.
In an open letter on Twitter, Cameron blasted Garry Silbert for being a fraud and demanded that he resign from his position as CEO of Digital Currency Group. Friction between the two emerges from a promisor and funds Gemini lent to Genesis capital.
Bitvivo exchange shared a similar sentiment after Digital Currency Group offered to repay the exchange only 70% of the funds owed. Bitvivo responded that Digital Currency Group had enough assets and funds in its coffers to repay the $300 million it owed.
Several individual Gemini earns investors have also filed for court hearings against Digital Currency Group.
In regards to the claims by Winklevoss, Silbert shared in a Q&A session that he only owed Genesis $447 million and 4,550 BTC and that Digital Currency Group had no authority in the firm’s restructuring.
What next for DCG?
Analysts suggest that the DCG move will substantially impact the crypto market. The firm may liquidate a substantial amount of its assets and other crypto-related assets to make amends with its debtors.
Concerning the situation, Tron’s Justin Sun shared his willingness to spend $1 billion to purchase DCGs assets. The crypto billionaire, alongside Binance CEO Changpeng Zhao, had made a similar offer to the FTX exchange before it filed for bankruptcy. The two, however, backed off after the FTX situation became too delicate.
However, Mike Novogratz, CEO of Galaxy Digital Holdings, stated that the DCG liquidity crisis would involve less selling.
Genesis is working hard with financial analysts to restructure and avoid filing for bankruptcy.
The entire situation has made it difficult for the crypto firm to operate normally. Silbert said they would hunker down with a ‘lean and mean’ mindset as the new year unfolds. ‘Lean and mean’ meant cutting expenses and new investments until they found a lasting solution.
On the other hand, investors are crying foul over losses from the liquidity constraints forced into these firms. The crypto community will have to contend with massive layoffs and investment losses and hope the market does not tank this year.