By Michael Scott
One of the pace’s most crucial companies has encountered legal issues. This is how this happened. Digital Currency Group (DCG), a crypto giant, is one of the crypto industry’s major players. The conglomerate’s portfolio comprises an estimated 200 firms. Grayscale is one of the most famous firms and manages the eponymous Grayscale Bitcoin Trust, the globe’s most prominent Bitcoin (BTC) fund.
In 2013, it offered an opportunity for institutional investors as a private trust, and in 2015, it acquired a permit to trade publicly under the GBTC ticker. However, DCG encountered problems since last year’s crypto crash. In January, its digital asset lender, Genesis Global, became insolvent. In September, it disclosed it would stop all activities.
This week, DGG, its subsidiary Genesis Global Capital, and Gemini Trust, a crypto exchange, were hit by the New York Attorney General’s office. They were accused of fleecing clients of $1.1B.This is an explanation of DCG and what happened to it.
Establishment and Early Stage Fundraising
Barry Silbert, SecondMarket’s previous chief executive officer and founder, founded DCG 2015. At the time, he claimed the idea was to have it structured like a firm despite it being an entity investing in BTC firms. When it launched, it acquired funding from MasterCard, Bain CapitalVentures, New York Life, and FirstMark Capital.
In 2016, Digital Currency Group purchased CoinDesk, a crypto news publication, for a hidden amount. At the time, it was reported that the deal was approximately $500000 to $600000.
Digital Currency Group acquired significant investment, with Softbank, a Japanese multinational, guiding an investment round of $700M. Alphabet Inc., Google’s parent firm, also participated.
At that time, DCG’s value was $10B. According to Marcelo Claure, the CEO of SoftBank Group International, its shares were the ‘single-best assets that provided a range of crypto exposure.’
Plans to Convert Bitcoin into an ETF
Grayscale revealed its intention to convert GBTC, which had $38.8B, into an exchange-traded fund (ETF). Investors were hungry for this. At the time, the company said it was entirely dedicated to changing GBTC into an exchange-traded fund. Additionally, it claimed the regulatory environment would drive the timing.
The regulatory context became a significant problem for the company. One year after starting efforts to change GBTC, the United States Securities and Exchange Commission (SEC) was sued by Grayscale.
This happened after the regulator continuously refuted an application by Grayscale to convert its flagship fund into an exchange-traded fund. According to Donald B Verrilli, the company’s attorney, the SEC’s denial of the application resulted in it acting impulsively and illogically, thus contravening the Administrative Procedure Act and Securities Exchange Act of 1934.
Genesis Reveals its Intentions to Suspend Withdrawals
In the meantime, trouble was developing for Genesis. In this case, it had made loans amounting to billions of dollars to numerous struggling companies, including Alameda Research and Three Arrows Capital. The firms nearly defaulted on debt due to market contagion from TerraUSD’s fall.
By November, FTX, a major digital asset brand, had fallen. At that time, Genesis divulged customers’ intention to stop withdrawals from its lending arm because of the ‘unexpected market chaos.’ Afterward, DCG intervened by offering $140M in equity.
Crypto tycoons, the Winklevoss twins, got involved owing to the involvement of Gemini, their New York-founded crypto exchange. In this case, Gemini was the Gemini Lend program’s major lending partner.
This initiative aided holders of Gemini USD (GUSD) to acquire interest on their deposits. However, when Genesis paused withdrawals, users of the high-yield savings product were owed $900M.
On Twitter, Cameron Winklevoss claimed that Barry Silbert, DCG’s CEO, was utilizing ‘bad faith stall strategies.’ Derar Islam, Genesis’s acting chief executive officer, requested additional time to address the problem.
Genesis Falls Admits Exposure to FTX
Genesis Global Capital filed for insolvency protection and claimed it was exposed to fallen crypto firm FTX. According to debtors, it was one of the fallen exchange’s major’ feeder funds.’ Later, FTX’s new management and Genesis agreed on a $175M settlement.
Despite this year being tough, not everything is negative. In this case, a federal judge opted to reverse the decision by the Securities and Exchange Commission to prevent Grayscale from changing its Bitcoin Trust into a spot exchange-traded fund.
The verdict was considered a win for Digital Currency and the industry since the judge supported the crypto world. Additionally, the judgment would hasten to spot Bitcoin ETF endorsement in the United States.
Gemini Earn Challenges and NYAG Accusation
In a significant new deal after months of doubt, DCG said that Gemini Earn clients could witness 95 to 110% recovery on their claims. In a statement, the firm said it was an extraordinary outcome for any liquidating Chapter 11 case.
Just when it seemed things were being solved between Gemini and Genesis, Gemini Trust, Genesis Global Capital, and DCG were hit with a lawsuit from the office of the New York Attorney General.
Silbert is included in the case, which asserts that the cryptocurrency firms deceived investors and attempted to conceal losses of billions of dollars. It also added that middle-class investors experienced the most tremendous loss.
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