By Amy Castor and David Gerard
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Blind Spot Markets Live — 11 a.m. UTC, Friday January 13
Izabella Kaminska’s new financial newsletter is The Blind Spot. On Fridays, it runs Spot Markets Live — a large group text chat like the old FT Alphaville Markets Live. David’s on January 13 at 11 a.m. UTC. He’ll be talking about the crypto markets trash fire. You need to login to a website called Coodash. Sign up here. [The Blind Spot]
DCG, Gemini, and check kiting
How crypto worked in 2022:
- Massive check kiting between all of the players — write a check you can’t cash, then write a bigger check you can’t cash to cover the first check.
- Count the face value of each uncashed check as hundreds of millions of dollars in assets in your reserve.
- Pray nobody ever tries to cash one.
How crypto works in 2023:
- Someone tried to cash one.
Last week, Cameron Winklevoss of Gemini tweeted an open letter to Digital Currency Group’s Barry Silbert. This week, he tweeted another open letter— to DCG shareholders. Winklevoss directly accuses DCG of fraud, and calls on the board to fire Silbert as CEO. [Twitter; Gemini, PDF, archive]
“How did we get here? Greed.” Well indeed, Cameron.
Cameron and Tyler Winklevoss knew in July 2022 that DCG had written Genesis a $1.1 billion internal IOU — or so said Matt Levine from Bloomberg, citing The Information. But Gemini didn’t withdraw its client’s money then. Instead, it took a chance that everything would be fine! Then FTX blew up in November and Genesis froze withdrawals. Levine: “If you trusted the IOU in July, you probably feel foolish now. Winklevoss sure seems to.” [Bloomberg; The Information, paywalled]
On page 4 of Cameron’s letter, he calls Grayscale “Barry’s financial Hotel California.” Good to know he’s reading Amy’s stuff.
Silbert sent a letter to DCG shareholders shortly after. His letter does not in any way address the Winklevoss claims. [DCGupdate, archive]
Silbert wants us to believe that DCG subsidiaries operate as fully independent enterprises. “To be abundantly clear, DCG does not direct any trades, loans, or borrows for Genesis’ business.” Sam Bankman-Fried said the same thing about FTX’s various businesses.
Silbert claims that DCG loans to Genesis were structured on an arm’s length basis. 1% interest on a $1.1 billion IOU is not arm’s length.
“DCG has never had a relationship with Three Arrows Capital.” Well, except that 3AC was Genesis’ biggest customer, with a $2.36 billion loan in 2022. And in On December 30, 2020, 3AC had a $1 billion position on GBTC, according to Grayscale’s SEC filings. [SEC]
Silbert says the promissory note from DCG to Genesis is not callable, and does not contain any other similar features of a callable bond.
On January 8, Gemini terminated the Master Loan Agreement with Genesis and emailed customers accordingly. This “requires Genesis to return all outstanding assets in the program.” Genesis did not return the funds by the end of January 10 — so they were officially in default on the loan. At this point, Genesis can pull the pin and try to put Gemini into involuntary bankruptcy. [Twitter]
RedeemGBTC is a group of GBTC holders trying to pressure DCG’s Grayscale into stepping down as manager of the trust and liquidating GBTC shares back into bitcoins. The trouble is, Grayscale is under no legal obligation to do that — no matter if 90% of GBTC holders want it to liquidate. (DCG is the other 10%.) [RedeemGBTC; Blockworks]
Gemini added trading on tethers to their exchange at 6 p.m. ET on January 10. Not available to New York customers. [Gemini]
Nexo is nexto
Nexo is another dodgy CeFi crypto “lender” targeting ordinary investors in the manner of Celsius and Voyager — complete with unfeasible interest rates.
As is standard in crypto, Nexo is only solvent if you count its internal supermarket loyalty card points, the $NEXO token, as money.
Nexo didn’t offer services in its native Bulgaria — but this didn’t protect them. On the morning of Thursday January 12, Nexo’s offices in Bulgaria and at least some of the homes of the owners — “more than 15 addresses,” according to the General Prosecutor’s office — were raided by prosecutors, investigators and … counterintelligence agents. [BTV Novinite, in Bulgarian; Nova, in Bulgarian]
The General Prosecutor’s office said: “Active actions are being carried out in Sofia to neutralize the illegal criminal activity of the cryptobank Nexo. It established and maintains an international platform for exchanging and lending cryptocurrency. The main organizers of this activity are Bulgarian citizens and the main activity is carried out from the territory of Bulgaria. The cryptobank operates through multiple registered companies, and the vast majority of them are mailboxes — shell companies.” [Nova, in Bulgarian]
300 people in the General Prosecutor’s office are working on the Nexo case, with 35 investigators from other agencies.
The action is apparently part of an international operation — investigating whether Nex
