Cracks Are Showing in Silbert’s $10 Billion Crypto Empire

(Bloomberg) — Suspended withdrawals at cryptocurrency brokerage Genesis amid a deepening crisis in the crypto market have drawn unwanted attention to Barry Silbert, the man at the helm of the Digital Currency Group empire.

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Silbert, who rarely does press interviews or speaks at numerous industry conferences, founded the Stamford, Connecticut crypto conglomerate DCG in 2015, according to the 46-year-old’s LinkedIn profile. Last year, GDC’s valuation reached $10 billion, after it sold $700 million of stock in a private sale led by SoftBank Group Corp. DCG had 66 employees at the beginning of November and has more than 200 companies in its portfolio.

DCG’s scope is wide: in addition to the lender Genesis, it also controls the digital asset manager Grayscale Investments, which offers the largest crypto fund in the world. DCG is also the parent of crypto-mining service provider Foundry Digital, news publication Coindesk and exchange Luno, among others. DCG declined a request for an interview with Silbert.

Within the crypto space, DCG’s potential is well known. The privately held firm’s portfolio over the years has included everything from exchanges like Coinbase to hardware maker Ledger to crypto-focused bank Silvergate.

“They are a big market in crypto,” said Wilfred Daye, chief executive officer of Securitize Capital, a digital asset management firm. “His footprint is everywhere.”

With the stopped Genesis redemptions, the health of DCG is called into question, a spiral that follows the devastating blow of the Bahamas-based crypto exchange FTX and its former CEO, Sam Bankman-Fried. Genesis was the crown jewel in Silbert’s kingdom, having established itself as one of the largest and best-known brokers, allowing funds and market makers to borrow dollars or digital currencies to execute their trades. increase.

“There are a lot of lessons to be learned here,” said Campbell Harvey, a finance professor at Duke University. “Going forward, the level of due diligence is likely to increase. It is no longer acceptable to have significant exposure to opaque offshore entities – no matter how popular their founders.”

Silbert first bought Bitcoin in 2012, when the industry was in its infancy. Among the firm’s earliest hires were Michael Moro, who left the CEO role at Genesis in August, as well as Ryan Selkis, co-founder of researcher Messari, and Meltem Demirors, chief strategy officer of the digital asset investment firm rival CoinShares.

Grayscale is relatively unscathed by the latest ordeal – the firm was quick to say on Wednesday that its products are operating as normal. Even now, the asset manager is dealing with its own set of issues. The $10.7 billion Grayscale Bitcoin Trust (ticker GBTC) is trading at a steep discount to its Bitcoin holdings, as the trust’s structure does not allow it to redeem shares. Grayscale sued the US Securities and Exchange Commission in June after the regulator rejected the firm’s request to convert GBTC into an exchange-traded fund.

But even with the steepest discount, GBTC is seen as a cash cow for Grayscale — and by extension, for GDC. The trust charges an annual fee of 2% to shareholders. That means that while GBTC has lost billions of dollars in value since total assets peaked at more than $40 billion last November, Grayscale would collect more than $200 million in fees from the trust annually at asset levels current, according to calculations by Bloomberg. .

Wednesday’s Genesis move only affects its lending business, according to interim CEO Derar Islim, who said the company’s spot and derivatives trading and custody businesses are “fully operational”. However, the decision to stop withdrawals comes after a painful stretch for the brokerage.

Cracks began to appear after Genesis was caught up in the bankruptcy of hedge fund Three Arrows Capital. Genesis was the number one creditor that fall when the fund failed to meet margin calls. GDC assumed some liabilities and filed a $1.2 billion claim against Three Arrows, which is in liquidation. Genesis said in October — before the FTX blowup — that lending fell 80% in the third quarter.

“Genesis Global Capital, Genesis’ lending business, has made the difficult decision to temporarily suspend redemptions and new loan originations. This decision was made in response to the significant market displacement and loss of industry confidence caused by the FTX push,” said company spokeswoman Amanda Cowie. “This affects Genesis’ lending business and does not affect Genesis’ trading or custody businesses. Importantly, it has no impact on the business operations of GDC and our other wholly owned subsidiaries.”

Amid recent brewing turmoil, DCG has repositioned its C-suite. Mark Murphy was promoted to president as chief operating officer as part of a restructuring that left the company with about 10 employees. Meanwhile, a handful of Genesis’ trading desk personnel are also gone, as are its head of market insights and chief risk officer.

Silbert founded DCG after selling SecondMarket, a private asset marketplace acquired by Nasdaq in 2015. Last year he told the Wall Street Journal that he sees Standard Oil as an inspiration for his digital asset firm. Before SecondMarket, Silbert also worked at Houlihan Lokey, after graduating from Emory University, his LinkedIn profile shows.

–With assistance from Muyao Shen, Olga Kharif and Anna Irrera.

(Updates with context on early hires and personnel shuffles in the 8th and 14th paragraphs.)

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