Silbert’s once $10 billion crypto empire is showing cracks

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

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Silbert, who rarely gives press interviews or speaks at the many industry conferences, founded the Stamford, Connecticut-based crypto conglomerate DCG in 2015, according to the 46-year-old’s LinkedIn profile. Last year, DCG’s valuation hit $10 billion after it sold $700 million in shares 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 reach is huge: in addition to controversial lender Genesis, it also controls digital asset manager Grayscale Investments, which offers the world’s largest crypto fund. DCG is also the parent company of crypto mining service provider Foundry Digital, news publication Coindesk, and exchange Luno, among others. DCG turned down a request for an interview with Silbert.

DCG’s power is well known within the crypto space. Over the years, the private company’s portfolio has included everything from exchanges like Coinbase to hardware maker Ledger to crypto-focused bank Silvergate.

“They are pretty big on crypto,” said Wilfred Daye, CEO of digital asset management firm Securitize Capital. “Their footprints are everywhere.”

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

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

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

Grayscale has been relatively unscathed by the latest upheaval — the company was quick to say on Wednesday that its products are operating normally. However, the asset manager has its own problems to deal with. The $10.7 billion Grayscale Bitcoin Trust (ticker GBTC) is trading at a record discount to the Bitcoin it owns, as the trust’s structure does not allow it to exchange shares. Grayscale sued the U.S. Securities and Exchange Commission in June after the regulator rejected the company’s application to convert GBTC into an exchange-traded fund.

But even with the record discount, GBTC is seen as a cash cow for Grayscale – and by extension for DCG. The trust charges shareholders an annual fee of 2%. 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 still collect more than $200 million in fees from the trust per year, according to Bloomberg calculations. at current asset levels. .

Genesis’ move on Wednesday only affects lending, according to interim CEO Derar Islim, who said the company’s spot and derivatives trading and custody operations “remain fully operational.” However, the decision to halt withdrawals comes after a painful period for the brokerage industry.

Cracks surfaced after Genesis became entangled in the bankruptcy of hedge fund Three Arrows Capital. Genesis was the largest creditor caught up in that collapse after the fund failed to meet margin calls. DCG assumed some liabilities and filed a $1.2 billion claim against Three Arrows, which is in liquidation. Genesis said in October — before the FTX blowout — that third-quarter lending was down 80%.

“Genesis Global Capital, the lender of Genesis, made the difficult decision to temporarily suspend repayments and new loans. This decision was made in response to the extreme market disruption and loss of confidence in the industry due to the FTX implosion,” said company spokesperson Amanda Cowie. “This will affect Genesis lending and will not affect Genesis trading or custody operations. Importantly, it does not affect the business of DCG and our other wholly owned subsidiaries.”

Amid the recent brewing turmoil, DCG has recast its C-suite. Mark Murphy was promoted to president from chief operating officer as part of a restructuring that saw about 10 employees leave the company. Meanwhile, a handful of Genesis trading desk staff have also left, as well as the head of market insights and the chief risk officer.

Silbert founded DCG after selling SecondMarket, a private asset marketplace that was 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 company. Prior to SecondMarket, Silbert also worked at Houlihan Lokey after graduating from Emory University, according to his LinkedIn profile.

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

(Context updates on early hires and employee shuffles in paragraphs 8 and 14.)

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