Crypto endurance put to test

Stocks plunged, crude fell, unrest in China grew, another FTX shoe dropped, the world's largest active volcano erupted – and Bitcoin, eerily unfazed, gained 2% to reach roughly $16,500.

News that BlockFi was filing for bankruptcy broke on a Monday afternoon that ultimately saw the Dow Jones Industrial Average shed 1.5%. China's whip-cracker of a coronavirus policy lashed out at various risk assets around the globe.

Somehow, the Chapter 11 woes of a major crypto lending/borrowing platform entangled in the FTX disaster struck the cryptosphere like a meekly tossed anvil made out of balsa wood.

Spot market BTC briefly bid down below $16,200 but had meandered back toward $16,495, at least as of 7:30 a.m. (EST).

The biggest crypto shrugging off FTX-related pressures in itself possibly opens the door for a further rebound (Cointelegraph).

Meanwhile, Ethereum, as of Tuesday at 7:40 a.m. (EST), was $1,217 on a 24-hour gain of 3.7%. And Dogecoin is back above a dime.

“With the collapse of FTX, the BlockFi management team and board of directors immediately took action to protect clients,” Berkley Research Group's Mark Renzi said in yesterday's public announcement that BlockFi was seeking bankruptcy court protection.

Financial restructuring specialist Berkley was enlisted by the embattled crypto platform as an advisor on Nov. 14. Four days earlier, BlockFi halted withdrawals.

Lending and borrowing using crypto as collateral turned ugly when asset prices plummeted in the spring/summer amidst the collapse of the Terra ecosystem. Contagion, accelerated by the collapse of a big crypto hedge fund, Three Arrows Capital, punctured the hulls of Voyager and Celsius, rivals of BlockFi. The latter firm confronted its own financial peril, leading to a $250 million credit lifeboat from FTX.

FTX filed for bankruptcy protection in the U.S. earlier this month. This followed the exodus of $6 billion in just a few days after rival Binance pulled out of a rescue deal after dumping an FTX-issued digital asset in the wake of damaging reports suggesting FTX was essentially a house of cards.

BlockFi's liquidity-crisis-inducing exposure to FTX includes undrawn amounts from BlockFi's $250 million credit line with FTX US, as well as obligations owed to BlockFi by Alameda Research and assets held at FTX.com, according to its Chapter 11 filing (Yahoo Finance).

BlockFi listed its assets and liabilities as being between $1 billion and $10 billion. It has more than 100,000 creditors.

The spotlight is on Genesis, a digital asset broker with a derivatives arm exposed to FTX to the tune of $175 million, and which has suspended withdrawals on its lending side.

Genesis, not to be confused with Gemini, which is also reeling, is seeking emergency funding of at least $500 million to ensure it has enough cash on hand to pay its customers, Wired reports.

Neither Genesis, nor its parent company, Digital Currency Group, has issued any public statements in the past few days while crypto watchers fret anxiously, dive down YouTube rabbit holes and wager on prediction markets, like Polymarket, whether Genesis will or will not be solvent as of the end of 2022. (Polymarket’s participants peg the probability of a Genesis insolvency at 59% by year’s end).

On November 21, Genesis declared it had “no plans to file for bankruptcy imminently;” the firm has hired an advisor, investment bank Moelis & Company, to help explore options.

Halting withdrawals has been the precursor to multiple previous crypto collapses this year, including at FTX and Celsius, Wired points out.

Meanwhile, several U.S. state regulators are looking into whether Genesis may have violated securities laws (CoinDesk).

Even in the event that an institution the size and standing of Genesis topples, the crypto industry would likely survive the ordeal, Wired said. "But the days of minimal oversight, generous funding, and rapid expansion are over."