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Fears that the collapse of FTX will cause more devastation in the crypto industry are affecting almost every investor in the US, from individuals to large Wall Street firms, and many are wondering if another cryptocurrency trading platform called Genesis will fall next.
So far, those fears have not been realized, and a Genesis spokesman said in a statement to NPR on Tuesday that “our goal is to resolve the current situation in the lending business without the need for any bankruptcy filing.”
But Genesis has reportedly warned potential investors that it may need to file for bankruptcy if it can’t quickly raise a significant chunk of cash — $1 billion, according to Bloomberg News.
And there are other worrying signs: Gemini has suspended redemptions and stopped making new loans.
“Crypto contagion” is a real possibility in the decentralized system of digital currencies, where few investor protections are in place. Businesses can apparently opt out of following standard accounting procedures and controls, and companies can be entangled with each other in obscure ways.
FTX and its 100-plus affiliates around the world had deep ties with other companies, serving more than 1 million customers. That made it easy for him its financial problems spread rapidly.
BlockFi, one of a handful of companies bailed out by FTX in recent months, has halted customer withdrawals, citing “significant exposure to FTX and associated corporate entities.” It asked customers not to make any deposits as well.
Asked if it is on the brink of bankruptcy, the company’s press team told NPR that “there are a number of scenarios” it could pursue, and it is working “to find the best path forward for our customers.”
At the same time, the collapse of FTX has not been limited to companies and investors with direct exposure to the bankrupt business. The spectacular implosion of the stock exchange, valued earlier this year at more than 30 billion dollars, has created the volatility of crypto and caused the values of cryptocurrencies and bitcoin, which were already falling, to fall even more.
It has also triggered panic.
Investors pulled more than $400 million out of the Gemini exchange, founded by the Winklevoss twins, in a 24-hour period last week, spooked when Gemini briefly suspended its yield-paying program backed by Genesis, Coindesk reported.
Other major exchanges such as Binance and Coinbase have also seen significant declines recently, according to Coindesk.
Trying to figure out how FTX will affect Genesis
Unlike FTX, which focused on bringing ordinary people into the crypto world, Genesis works with large institutional investors, the type that have more influence on the financial system.
The promise at the top of the website: “Institutional access. Global scale.”
In a series of posts on Twitter, Genesis claimed to have “no ongoing lending relationship with FTX or Alameda,” the crypto hedge fund founded by now-former FTX CEO Sam Bankman-Fried.
But the company reportedly owns FTT, a cryptocurrency created by FTX. Its value has fallen from an all-time high of $79.53 to less than $1.50. And Genesis previously acknowledged that it has $175 million in a locked FTX trading account.
“FTX has created unprecedented market turbulence, resulting in abnormal withdrawal requests that have exceeded our current liquidity,” Genesis said recently, adding that it is working to “acquire new liquidity.”
It has been in contact with two firms, Binance and Apollo Global Management, according to The Wall Street Journal and Bloomberg News. Binance declined to comment on the reports and Apollo Global Management did not respond to a request for comment.