While the cryptocurrency market is still suffering from the consequences FTX scandalthe bankruptcy of Genesis was perhaps the last straw.
After a long bear market struggle and many calls for help, Genesis left last Friday. The company is also on the long list of victims of the FTX scandal, and its collapse could bring down other market heavyweights.
So, how can we end this vicious cycle and this contagion effect that threatens the entire sector?
Genesis is not the latest victim of the domino effect
Crypto lending platform Genesis filed for bankruptcy shortly after it was arrested by the U.S. Securities and Exchange Commission (SEC) for unauthorized sale of cryptocurrencies. The company is part of the Digital Currency Group (DCG), a group of over 200 cryptocurrency companies. So the accusations from the SEC and the collapse of FTX last November certainly exacerbated the crisis that Genesis was going through and even led to its collapse.
Contrary to what one might think, the fall of Genesis is not an isolated incident. Indeed, hedge fund Three Arrows Capital (3AC), which went bankrupt in June 2022, owed Genesis more than $1.2 billion. Similarly, 3AC was heavily impacted by the collapse of Terra Luna and the algorithmic stablecoin TerraUSD.
This contagion phenomenon, which some analysts call the “crypto winter,” has been raging in the cryptocurrency market for months now, and now each new bankruptcy is causing fear of another.
Gemini: the next victim of crypto winter?
In 2020, Genesis and Gemini launched a new program called “Gemini Earn” which allowed Gemini customers to lend money to Genesis in exchange for a 7.4% return. However, Genesis put withdrawals on hold in November due to market volatility. Since then, over 340,000 investors have failed to withdraw their funds.
To protect the interests of its customers, Gemini went to court. But pending a court verdict, the crypto exchange must find a way to reimburse its customers to avoid the worst.
Regulation: a cure for the ills of the crypto market?
The SEC allegations against Genesis and the ongoing dispute with Gemini demonstrate that the lack of regulation can affect not only the cryptocurrency business, but also retail investors. To avoid similar scenarios in the future, all participants in the crypto market should contribute to the development of the regulatory framework.
As the crypto industry continues to grow, the market needs a regulatory framework to ensure corporate transparency and protect investors. Therefore, it is time for market participants to take these warnings seriously and take steps to prevent similar situations in the future.
By implementing stricter rules and stronger controls, we can create a safer and more reliable crypto market. Something that will allow companies to regain investor confidence.
Like FTX and Three Arrows Capital, the bankruptcy of Genesis will no doubt have a significant impact on the cryptocurrency market. Instead of sitting back and waiting for the storm to die down, market participants should seize this opportunity to address the industry’s challenges and pave the way for a more stable and sustainable future.
Moral of the story: sometimes change starts with a fall, and this time it looks like it will start with the fall of Genesis.
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