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The strong start to the year has continued for bitcoin and the overall cryptocurrency market over the past seven days. At its peak a few days ago at $23,350, bitcoin was up nearly 50% from its 2022 low. Bitcoin has managed to establish itself as one of the most enticing investments globally, outperforming other major asset classes. In 2023 so far, we are seeing a rebound in many other sectors, while inflation rates are starting to ease. Since November lows, gold and the S&P500 are up 19% and 13% respectively.
Among the main recurring themes in this letter since the fall, it’s impossible to ignore that cryptocurrency lender Genesis officially filed for bankruptcy last Thursday. “A court-ordered restructuring is the most effective way to preserve assets and create the best possible outcome for all Genesis stakeholders,” said Derar Islim, Genesis’ interim CEO, in a prepared statement. The company in question, a subsidiary of Digital Currency Group (DCG), says it has ample cash on hand, amounting to more than $150 million, sufficient to fund operations during the restructuring period.
The entities that filed for Chapter 11 bankruptcy protection in the Southern District of New York are Genesis Global, a holding company, and its lending subsidiaries, such as Genesis Global Capital and Genesis Asia Pacific. According to a Genesis spokesperson, Genesis Global Trading and other subsidiaries involved in derivatives, cash trading and custody activities are not affected by this proceeding and continue to operate.
This is obviously a new page in the saga between Genesis and Gemini regarding the Earn program. In response to the announcement, Gemini co-founder and President Cameron Winklevoss wrote on Twitter that “we will use every tool available to us in the bankruptcy court to maximize recovery for Earn users and any other parties within the bankruptcy court’s jurisdiction.” He adds, “Unless Barry and DCG come to their senses and make a fair offer to creditors, we will be filing a lawsuit against Barry and DCG imminently. Crucially, the decision to put Genesis into bankruptcy does not insulate Barry, DCG, and any other wrongdoers from accountability.”
Genesis has concurrently filed a lawsuit against Roger Ver, an industry veteran sometimes dubbed “Bitcoin Jesus” relating to “monetary damages for the defendant’s failure to settle cryptocurrency option trades that expired on December 30th, 2022, in an amount to be determined at trial, but not less than $20.9 million.” This amount, however, weighs very little in the balance of Genesis’ liabilities. Indeed, it was learned that Genesis owes $3.6 billion to 50 different creditors, including investment companies and hedge funds. However, it is the Gemini exchange that sits at the top of this dismal list, with an estimated debt of $765.9M. The second largest named creditor is a Singapore-based entity called Mirana Corp, which has approximately $151.5 million in outstanding debt.
How long will it take to resolve this dispute? If one of Genesis’ lawyers, Sean O’Neal, is to be believed, these disputes with creditors could be settled as early as this week. At least that’s what a Reuters report said yesterday. “Sitting here right now, I don’t think we’re going to need a mediator,” O’Neal was quoted as saying in Manhattan court during a preliminary hearing on Monday. “I’m very optimistic.” According to O’Neal, Genesis and the company’s creditors are “getting closer” to a deal. At the same hearing, Genesis also revealed its intention to auction off various assets held by the company, and to exit bankruptcy by May 19th.
According to a court document released Friday, FTX founder Sam Bankman-Fried held about $50 million in a bank account at a little-known financial institution in rural Washington State. Until then, this bank was the 26th smallest bank in the U.S., out of a total of about 4,800. It’s based in Farmington, Washington, which has a population of only 146. Farmington had only three employees, specialized in loans to farmers and did not offer online banking or credit cards at the time of Bankman-Fried’s investment. SBF’s Alameda Research trading firm bought an $11.5 million stake in Farmington in March of last year – more than double the bank’s total net worth at the time. The bank in question registered the name “Moonstone” just days before Alameda’s investment. Until recently, it was listed online as “Moonstone Bank.” Although its website did not explicitly refer to cryptocurrencies, it stated that it wanted to “support the evolution of next-generation finance.” However, last week, the institution announced that it would be retiring the Moonstone name and focusing on its business as a community bank.
The bitcoin mining industry looks set to rebound nicely from a dismal 2022 to say the least. Bitcoin technology company Blockstream has raised $125 million to scale up its operations. Argo Blockchain’s stock, ARBK, meanwhile, has resumed trading on NASDAQ, the company announced in an SEC filing Monday morning. On December 16th, NASDAQ initially warned Argo that it needed to suspend trading because its stock had not maintained a closing price above $1 for 30 consecutive days. “To regain compliance, the company was required to maintain a minimum closing offer price of $1.00 for ten consecutive trading days,” the company wrote in its SEC filing. “This requirement was met on January 13th, 2023.” Argo’s mines are located here in Quebec.
Mining a bitcoin is often compared to a lottery in which all computers pointing their work toward the network participate. We had a perfect example of this this week, when a lone bitcoin miner solved a block with a hash rate of only 10 TH/s, beating extremely unlikely odds. At the time the block was added, bitcoin’s total hash rate was just over 269 exahash per second, meaning the solo miner’s 10 TH/s hash rate was only 0.000000037% of the blockchain’s total computing power. In return, the miner received 98% of the total 6.35939231 BTC allocated for the block reward and fees.
After last weekend’s surge, bitcoin is currently consolidating in a channel between $22,300 and $23,300. The price is drawing a technical picture very similar to the first half of January’s surge – a bull flag – which could retest resistance at $23,300 if the scenario repeats. On the downside, we look at possible support at $21,500. However, it is still the S&P 500 trend line that seems to be driving the markets right now. Will we go back down or will the downtrend that has been in place for over a year be broken? We are definitely at a pivot point.
Rivemont Investments, manager of the Rivemont Crypto Fund.
The presented information is as of January 25th, 2023, unless otherwise indicated and is provided for information purposes only. The information comes from sources that we believe are reliable, but not guaranteed. This statement does not provide financial, legal or tax advice. Rivemont Investments are not responsible for any errors or omissions in the information or for any loss or damage suffered.
