In this episode of Bell Curve, Vance, Michael, Mike, and Jason explores Genesis' fallout and the knock on-effects for DCG. They discuss how we got here, the likelihood of bankruptcy, implications for Grayscale's GBTC trust, and which dominos might fall next.
Read our notes below to learn more.
Thoughts on DCG
DCG is an OG in the space with Genesis, CoinDesk, and Foundry as child companies.
Genesis is the largest lender in the industry.
DCG’s child company CoinDesk released the publication of FTX’s balance sheet which started the domino and took out their subsidiary Genesis.
DCG is the most capitalized group in the space with GBTC, the biggest in the lending space with Genesis, and the largest mining group with Foundry.
Genesis Trading got hurt with the $1 billion $UST trade for $1b in $BTC.
Rumors are that Genesis incentivized traders to give them a larger percentage of commission and that could have started the acceptance of bad collaterals like FTT at Genesis.
DCG should have been able to pay back the $575m loan from Genesis if not for the bank run.
Genesis lent out $65m in Q4 2019 and $51b in Q4 2021.
What Happens to DCG Now?
Rumour is that Genesis had 8-10 firms with non-liquidation clauses, other than that they were pretty good with collateralization for loans.
DCG has to avoid bankruptcy by using cash flow from different streams of avenues of theirs.
Like the Goldman situation in the 2000s where Buffet helped save the illiquidity issue, Barry himself could be able DCG’s illiquidity issue.
Creditors of Genesis either could push Genesis into bankruptcy or give Genesis some time to fill the hole with cash flow-producing assets.
Irreparable loss of trust in Genesis Lending, customers aren’t coming back even if Genesis comes out of the situation.
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Low Float Tokens
FTX with low float tokens like $SRM tried to pump the price of the token and since they couldn’t take profits because of the low float of the token, they took out loans at the top with $SRM as collateral.
Lending firms were incentivized to take it as collateral to bring in revenue.
Is The Collapse of Firms Good For The Space
Bullish to have had this washout, regulation could be good for the space.
BTC Miners capitulation has been at the bottom in the previous cycles.
A lack of Narrative could also cause a boring few years in the crypto space.
The credibility of the central banks is inversely correlated to the success of BTC.
Macro Thesis
Bonds get bid first, and the bid comes to equity and then to crypto.
Inflation being high is another reason why we could not be near the bottom.
Nobody really knows how the markets are going to play out over the next years and it is really hard to predict.
BTC vs ETH
If BTC doesn’t generate fees, the computational power required to power the network and provide security is going to go away.
Any form of money should be sustainable to survive.
ETH could be a deflationary yield-bearing asset that’s used as collateral in NFTs and has a better chance to become a digital store of value.
If Genesis winds down, BTC will not be used as collateral as much as ETH.
Supply is the cost of operating the network + Issuance.
Economic sustainability is a) Demand = supply b) Issuance > cost of operation. The protocol must have a very clear, defined path towards both a) and b), considering all adverse conditions.
Sustainability is an important aspect to look into while investing in crypto for long term.
Middleware (protocol, token in an application layer) could benefit if there is better cross-chain interoperability.
Thoughts on Coinbase
Large public companies like Coinbase also have a 10% inflation to acquire labor.
The CEO of Coinbase has publicly informed that he will be selling 2% of his shares of Coinbase to fund other ventures of his.
10B5 in traditional markets prevents founders from exiting positions with inside information.
Meme of the Week
Outro
Perma Bears are pessimists forever and are now predicting everything to crash. People who lost a lot of money become Perma bears.
From an investment point of view, people should try to focus on what could go right and what could go wrong.
People interested in crypto are optimists.
Check Out These Important Links
TODAY’S EDITION IS BROUGHT TO YOU BY LEDGER HARDWARE WALLET
We are all having trust issues with centralised exchanges so we have partnered with the Ledger, who is the industry leader and most trusted vendor in the hardware wallet space.
Using a hardware wallet is the smartest way to secure your assets.
Act now, click the link below and secure your crypto.