Contagion: Genesis faces huge losses, BlockFi’s $1B loan, Celsius’s risky model

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It was another day to watch the ripples of infection spread in the cryptocurrency market.

With Three Arrows Capital (3AC) ordered to be liquidated by a British court, details also emerged Thursday that BlockFi had liquidated a $1 billion loan to 3AC, and the fallout from the insolvency was partly responsible for lender and market maker Genesis Trading facing losses estimated at “. A few hundred million dollars.”

Withdrawals are still pending on the potentially insolvent lending and borrowing platform Celsius, which was revealed to have a high risk 19:1 ratio of assets to equity before it faced liquidity problems this year.

Risky business in Celsius
According to documents reviewed and published by the Wall Street Journal (WSJ) on Wednesday, Celsius has been operating on very good and risky margins as its value ballooned through 2021.

According to documents prepared before the latest capital increase, Celsius, which claimed to be a less risky alternative to the bank, had an asset-to-equity ratio of $19 billion to $1 billion in the middle of last year while also issuing several loans that were not guaranteed.

The assets to equity ratio indicates the proportion of a company’s assets that have been financed by shareholders. The ratio is generally an indication of how much debt a company has taken in to fund its operations, with higher ratios often indicating that the company has used significant financing and debt to stay afloat.

The proportions differ from one sector to another, as do the assets owned by the specific entities. However, the already high 19:1 ratio in Celsius is seen as too risky due to the company’s exposure to cryptocurrency, leverage and lending.

It’s “just a risky structure,” said Eric Bowdish, an economist with experience in cryptocurrency at the University of Chicago Business School, likening Celsius’s operations to those of financial firms in the run-up to the 2008 housing bubble:

“It seems to me as diversified as the same way mortgage portfolios were diversified in 2006. It was all residential – here it’s all crypto.”
Reports have also surfaced that Voyager Digital has sent more than $174 million to C over the past few months. Analytics platform Nansen confirmed these transactions this week. However, the nature of the financing or whether it is a loan is not clear.

Genesis faces hundreds of millions of losses
Digital Currency Group’s market maker and lender Genesis Trading is reportedly facing hundreds of millions in losses, according to sources reported by DCG Coin Desk.

The losses relate in part to the company’s exposure to 3AC and crypto lender Babel Finance. Genesis puts a brave face on the losses and still has hope of a partial payout, with other losses offsetting by hedging. CEO Michael Morrow said the company had mitigated losses with a “significant counterparty failing to meet our margin call:”

“We sold the collateral, hedge our downside, and moved forward. Our business continues to operate normally as we meet all of our clients’ needs.”
BlockFi Battle
A leaked investor call from hedge fund Morgan Creek Digital confirmed that the liquidation of a large unnamed client by BlockFi on June 16 was 3AC.

During the call, Mark Yusko, managing partner of Morgan Creek and co-founder Anthony “Bump” Pomplano, stated that BlockFi “informed” the company of a $1 billion loan and 30% additional collateral.

Pomp went on to say that nearly two-thirds of the additional $1.33 billion in collateral was in bitcoin (BTC) and was immediately liquidated once 3AC was unable to repay. Another third was said to be in shares of Grayscale Bitcoin Trust (GBTC) worth about $400 million.

Grayscale’s BTC fund is designed to be tied to the spot value of BTC, however, it is often traded at a premium or discount.

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