Dutch Bitcoin Exchange Bitvavo Alleges Digital Currency Group Is Having ‘Liquidity Problems’

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Dutch cryp­tocur­ren­cy exchange Bit­va­vo says it has 280 mil­lion Euros ($297 mil­lion in USD) stuck with Dig­i­tal Cur­ren­cy Group (DCG), or 17.5% of the $1.6 bil­lion Euros Bit­va­vo says it man­ages in deposits and oth­er assets. Bit­va­vo assured cus­tomers that the sit­u­a­tion “does not have any impact on the Bit­va­vo platform.”

Bit­va­vo claims in a blog post that DCG is “expe­ri­enc­ing liq­uid­i­ty prob­lems due to the cur­rent tur­bu­lence in the cryp­tomar­ket” and that DCG “has sus­pend­ed repay­ments until this liq­uid­i­ty issue has been resolved.”

But a DCG spokesper­son told Reuters that the funds are held by its “inde­pen­dent sub­sidiary” Gen­e­sis, not DCG. Decrypt has reached out to DCG for fur­ther comment. 

Bit­va­vo retort­ed to Reuters that it “held DCG respon­si­ble for the inac­ces­si­ble funds.”

DCG, head­ed up by Sec­ond­Mar­ket founder Bar­ry Sil­bert, is one of the cryp­to world’s largest and best-known cryp­to firms. It owns Gen­e­sis, Grayscale, Coin­Desk, Foundry, and Luno. 

The five weeks since FTX’s col­lapse and bank­rupt­cy fil­ing have not been good to DCG.

Gen­e­sis froze with­drawals on its lend­ing arm one month ago and has not unfrozen them. Gem­i­ni, the exchange owned by the Win­klevoss broth­ers (not a DCG sub­sidiary), in turn had to pause redemp­tions on its Earn prod­uct because its part­ner on Gem­i­ni Earn is Gen­e­sis. Gen­e­sis report­ed­ly owes Gem­i­ni Earn users $900 million. 

The trou­bles at Gen­e­sis have put the finances of DCG into question. 

On Novem­ber 22, Sil­bert told share­hold­ers that DCG owes Gen­e­sis $575 mil­lion but that, “We have weath­ered pre­vi­ous cryp­to win­ters, and while this one may feel more severe, col­lec­tive­ly we will come out of it stronger.” Yet on Decem­ber 3, the Finan­cial Times report­ed DCG owes Gen­e­sis $1.7 bil­lion

Grayscale Cap­i­tal also faces sig­nif­i­cant head­winds, with New York hedge fund Fir Tree Cap­i­tal Man­age­ment fil­ing a law­suit against the com­pa­ny alleg­ing its Grayscale Bit­coin Trust (GBTC) had “poten­tial mis­man­age­ment and con­flicts of interest.”

The Grayscale Bit­coin Trust is a fund that enables investors to gain expo­sure to Bit­coin with­out buy­ing Bit­coin them­selves. It cur­rent­ly trades at a dis­count of ‑48.7% com­pared to the mar­ket val­ue of the under­ly­ing asset, per data from Coin­Glass.

On Fri­day, cryp­to ana­lyst Will Clemente, co-founder of Reflex­iv­i­ty Research, not­ed on Twit­ter an aggres­sive sell­off in the past 48 hours of many cryp­tocur­ren­cies tied to DCG, spec­u­lat­ing it could be DCG look­ing for liquidity. 

File­coin and Flow, both of which Clemente claimed DCG has expo­sure to, have dropped around 20% and 10% in the past 24 hours accord­ing to CoinGecko data.

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