Crypto broker Genesis Trading (Genesis) abruptly halted withdrawals on 16 November, despite its parent company, DCG Group, injecting $140m to try to bolster liquidity.

This in turn led to Gemini Earn (Gemini) suspending customer withdrawals. Gemini Earn is a product offering customers an annual return on their crypto deposits.

According to an open letter from Cameron Winkelvoss to DCG Group owner Barry Silbert, over 340,000 Gemini Earn users are unable to access assets worth approximately $900m.

Winklevoss’ emotive letter accuses Barry Silbert of “engaging in bad faith stall tactics” and suggests that that DCG “owes Genesis $1.675 billion”. He draws parallels between Genesis and FTX by claiming that “DCG and Genesis are beyond commingled”.

Silbert replied saying DCG “has never missed an interest payment to Genesis and is current on all loans outstanding”.

Violated securities laws

Both parties claim to have delivered proposals to each other. The content of these proposals and counterproposals is unclear. But customers of both Genesis and Gemini are still unable to access their funds. 

In the meantime, Genesis creditors are working on potential restructuring options to try to stave off insolvency. A class action lawsuit has been launched against Gemini, alleging that the exchange deceived investors and violated securities laws.

It is clear that volatility in the crypto space is set to continue in 2023. The lack of transparency in this ecosystem means that it is very difficult to gauge the eventual impact of the various implosions of key market participants in 2022. What is becoming apparent is that we are looking at something that resembles a microcosm of a financial crisis playing itself in the crypto space with a lack of liquidity the most likely culprit behind further collapses and bankruptcies.