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Digital Currency Group Says Revenue Will Fall This Year

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Digital Currency Group Inc. said 2022 revenue is on track to reach $800 million, down about 20% from what the cryptocurrency-focused conglomerate expected to generate last year.

DCG is the parent company of Genesis Global Capital, a crypto lending firm that paused redemptions and loan originations on Nov. 16 after it couldn’t meet client withdrawal requests. DCG owes Genesis around $575 million that is due in May 2023, in addition to a $1.1 billion promissory note to Genesis due in June 2032, DCG Chief Executive

Barry Silbert

said in a letter to investors that was viewed by The Wall Street Journal. 

DCG is trying to assuage the fears of crypto traders and investors following the meltdown of crypto exchange FTX this month. Exposures that once seemed manageable have grown across the crypto industry, and investors are questioning the health of firms once viewed as safe.  

DCG is also the parent company of Grayscale, which manages the world’s largest bitcoin fund. Shares in the

Grayscale Bitcoin Trust

traded Monday at a 43% discount to their underlying stated holdings of bitcoin. On Friday,

Coinbase Global Inc.’s

custody arm vouched for the security of Grayscale’s digital assets held there. 

“We have weathered previous crypto winters and while this one may feel more severe, collectively we will come out of it stronger,” Mr. Silbert wrote. Mr. Silbert said in the investor letter that DCG’s other businesses, which include the media company CoinDesk and bitcoin-mining firm Foundry, were operating as usual. 

Other crypto companies are on track for revenue declines larger than DCG’s. At Coinbase, total revenue in the first nine months of 2022 fell to $2.57 billion, less than half what it generated in the same period last year.

Still, intercompany loans in crypto are under increased scrutiny following revelations about the credit FTX extended to its affiliated trading firm, Alameda Research. Genesis had $2.8 billion in active loans outstanding at the end of the third quarter, meaning the DCG loan due in May represents about one-fifth of its loan portfolio.

“It sounds like there’s some leverage here, but I don’t see the same risk patterns that I would see in something like FTX,” said

Mike Alfred,

a private investor specializing in crypto companies. “Maybe they need to sell one or two entities to fill those holes.”

Earlier this year, DCG took on liabilities from Genesis after the hedge fund Three Arrows Capital defaulted on loans it took out from Genesis, prompting the issuance of the $1.1 billion promissory note while DCG tries to recover assets from Three Arrows’ liquidation proceedings. Separately, the roughly $575 million that DCG borrowed from Genesis went to fund investment opportunities and buy DCG stock from outside shareholders, Mr. Silbert said in the letter. The loans were arm’s-length transactions priced at market rates, he said. 

After FTX imploded, Genesis said on Twitter that it had hedged and sold collateral, resulting in a total loss of about $7 million. The company also said its derivatives business has about $175 million in locked funds in the firm’s FTX trading account. 

In August, Genesis laid off 20% of its 260-person workforce, and then-Chief Executive

Michael Moro

left. This month, DCG laid off over 10% of its workforce in a restructuring that left the firm with 66 employees.

Genesis has also been trying to raise cash. Crypto exchange Binance decided not to invest after being approached by Genesis for an investment and to bid for its loan book. The company also asked private-equity giant

Apollo Global Management

for capital assistance, The Wall Street Journal has reported.

A year ago, DCG was riding high. A $700 million investment round for the Stamford, Conn.-based company last November valued it at $10 billion

Write to Peter Rudegeair at peter.rudegeair@wsj.com and Vicky Ge Huang at vicky.huang@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Appeared in the November 23, 2022, print edition as ‘Digital Behemoth Lowers Revenue Forecast.’



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