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The Story Behind Digital Currency Group (DCG)

Barry Silbert’s crypto empire could be unraveling before our eyes. As one of his company’s, Genesis, goes further into bankruptcy, pressure for him to sell off assets will only increase, marking potentially the beginning of the end for DCG and Silbert in crypto. 

While critics lampoon his companies (DCG, Genesis, and others) for their mishandling of retail money and poor investment decision, Silbert maintains he remains “incredibly proud” of the role he and DCG played “as pioneers and builders over the past decade.”


Genesis Trading, a subsidiary of Genesis Capital, acted as a lender to other institutions. Genesis procured capital to fund loans by borrowing from institutions and exchanges like Gemini. 

Genesis’ profits equaled the rate Genesis charged to borrowers less the rate it offered to depositors. Genesis Trading took the funds from firms like Gemini and loaned it to hedge funds, including Three Arrows Capital (3AC), which went bankrupt in June 2022. 

Genesis backed loans with the Grayscale Bitcoin Trust (GBTC) and Grayscale’s Ethereum Trust (ETHE). GBTC was one of the first securities in the world to only invest in and get its value from the Bitcoin price. 

Genesis lent Bitcoin and Ethereum to 3AC, which then sent BTC and ETH to Grayscale, and in return received GBTC and ETHE shares. 3AC then put GBTC and ETHE shares up as collateral to Genesis, which then lent more BTC and ETHE to 3AC. 

Meanwhile, only Genesis could accept orders to create or redeem shares of GBTC and ETHE shares. Genesis was both 3AC’s lender and Grayscale’s authorized participant, representing potential conflict of interests for Silbert. 

Genesis’ on-chain portfolio has at least eight addresses, which are worth $300 million. Funds are held 75% in ETH, with the rest in altcoins like USDC, COMP, APE, SAND, AAVE, and MANA. When 3AC collapsed last June, Genesis admitted to potentially “hundreds of millions” of losses.

Enter Gemini 

Gemini announced in 2021 a partnership with Genesis where participants earn “yield” on digital assets called “Earn.” 

The small print to which Gemini users agreed altered their relationship with Gemini. Participants became lenders, Gemini the acting agent, and Genesis the borrower. Gemini thus far takes zero legal responsibility for the fact their users are owed $900 million.

Gemini Earn users lent money to Genesis, which lent money to 3AC. The money was collateralized by Grayscale shares created by Genesis. Grayscale then posted the shares to 3AC, which borrowed more money from Genesis.

As one Twitter user described: “So Gemini gave the money to Barry (Genesis), who then gave the money to Barry (DCG), who then gave the money to Barry (Grayscale)?”

Silbert’s Conflict 

New York-based hedge fund FirTree, a shareholder in the Grayscale Bitcoin Trust, filed a lawsuit in the Delaware Court of Chancery seeking information on Grayscale’s potential mismanagement of and conflicts of interest with GBTC. When Grayscale denied FirTree’s allegations in its complaint, the hedge fund wrote in a press release Grayscale “continues to obfuscate the facts and refuses to provide clear information to GBTC shareholders.” 

According to FirTree, Grayscale failed to acknowledge  it “has the power to open redemptions and create liquidity for its investors, yet is choosing not to do so.” 

The situation is “extremely simple,” argues FirTree. “Grayscale management is keeping redemptions closed in order to maximize their revenues, and they don’t care that it’s at investors’ expense.” FirTree adds Grayscale failed to “take responsibility for issues it created, and commits to “taking all available actions” so  “Grayscale is held accountable.” 

In its official complaint, FirTree said approximately 850,000 retail investors were “harmed by Grayscale’s shareholder-unfriendly actions.” The complaint mentions Silbert by name 26 times across 41 pages. It also states that Grayscale is deeply interconnected with Silbert’s “cryptocurrency empire” 

“Mr. Silbert remains the Chairman of the Board of Grayscale and, until recently, was its Chief Executive Officer and a member of its Audit Committee,” reads the complaint. “…In short, each new day brings troubling new disclosures about misconduct and relationships among the Trust, Grayscale, and their affiliates.” FirTree wants Grayscale books to be opened for inspection. 

Barron’s reported that several “securities regulators are investigating Genesis Global Capital as part of a wide-ranging inquiry into the interconnectedness of crypto firms, Genesis’s connection to retail investors, and whether it or other industry participants might have violated securities laws.”

The penalty for willful violation of federal securities laws is imprisonment for up to 25 years or a fine, which will depend on the nature of your case.

What’s Next?

DCG claims it and subsidiaries are insulated from insolvency relating to its Genesis Lending business. Yet the firm is facing serious allegations. Grayscale will likely be the first asset to be sold when DCG legally can do so, alongside other liquid assets of DCG and Genesis. 

DCG halted  on January 17 quarterly dividends of its own accord, saying it did so to conserve funds. In a letter to shareholders, the cryptocurrency conglomerate said it is committed to enhancing its balance sheet and will do so by reducing operational costs and cash management. 

On 1/12/23, the SEC already charged Genesis and Gemini with selling unregistered securities through Gemini Earn.Earn members likely lacked insight into Genesis’ loss minimization strategies, loan and collateralization requirements, Genesis’ role as an authorized participant in Grayscale shares, loan structures between involved parties, Gemini borrower solvency, Gemini due diligence practices, exposure limits and margin oversight. Moreover, Grayscale executives admitted they “drove down the discount” by “flooding the market with supply.” 

As more headline grabbing revelations come to light, it could in turn lead to a further unraveling in Silbert’s former empire, leading to the bitter end of a once-celebrated crypto OG. 

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