DCG suspends dividend
It was revealed on the 17th that the digital currency group (DCG), a crypto asset (virtual currency) conglomerate company, has notified its shareholders that it will suspend dividends on stocks.
It has just been reported that DCG is considering selling part of its investment portfolio as DCG subsidiary Genesis Global Capital is saddled with more than ¥388 billion ($3 billion) in debt.
Relation:Cryptocurrency giant DCG sells part of its assets
According to US virtual currency media CoinDesk, a DCG subsidiary, the suspension of dividend payments was decided as a means to secure liquidity. In a letter to shareholders, DCG said:
In response to the current market environment, DCG has focused on strengthening its balance sheet by reducing operating expenses and securing liquidity. As such, we have decided to suspend the distribution of DCG’s quarterly dividends until further notice.
What is DCG
DCG has six subsidiaries and invests in over 200 blockchain-related startups and over 50 crypto funds, tokens and projects. Major subsidiaries include investment company Grayscale Investments, US largest bitcoin mining company Foundry, Genesis Global Capital, which is in danger of bankruptcy, and crypto asset media CoinDesk.
DCG’s corporate valuation reached about 1.3 trillion yen ($10 billion) in a funding round completed in early 2022, with annual revenue of 130 billion yen ($1 billion) at the time. In particular, Grayscale Investment’s investment trust “Grayscale Bitcoin Trust (GBTC)” is a top earner with a full-year fee income of 80 billion yen ($615 million) during the 2021 bull market.
However, Bitcoin (BTC) price plunged 63% year-on-year in the past year in one of the rarest bear markets in history, and GBTC assets under management (AUM) fell to $12.3 billion from over $40 billion in 2021. , management fee revenue (2% annually) is also estimated to have decreased to about 42.5 billion yen ($300 million).
Relation:What will be the impact of the liquidity crisis on Grayscale investment trust GBTC and its affiliates?
Debt increased in 2022
A series of deleveraging events in the cryptocurrency market, such as the Terra (LUNA) shock in May 2022 and the FTX shock in November, has also had a significant impact on DCG.
For example, Genesis provided a loan to Singaporean hedge fund Three Arrows Capital (3AC), which collapsed after speculating in Terra (LUNA). DCG has a debt of about ¥140 billion ($1.1 billion) to 3AC in the form of assuming Genesis’ debt.
Genesis Capital fell into a liquidity crisis due to the bankruptcy of FTX in November 2010, and stopped withdrawing customer funds and new loans. About ¥22 billion ($175 million) was tied up in an FTX account.
As a result, the yield service “Gemini Earn”, which was jointly provided with Genesis, was also suspended. U.S. cryptocurrency exchange Gemini is asking DCG to return a total of 116 billion yen ($900 million) in user funds.
Relation:Gemini founder criticizes DCG, seeks repayment of 120 billion yen in customer funds
Points to watch in the future
DCG CEO Silbert said at the end of November last year, “Out of DCG’s total debt of about 270 billion yen ($2 billion), including loans from Genesis, 1.1 billion is 3AC’s debt, and the debt for the time being is about 3AC. Only a 45 billion yen ($350 million) line of credit.”
However, after December of the same year, the problem of Gemini’s customer assets became apparent as DCG’s debt. Research firm Arcane has warned that a sale by DCG of some of its holdings, including GBTC, to secure emergency liquidity for Genesis would have an impact on the market.
According to the Financial Times, DCG’s investee portfolio is valued at around 64 billion yen ($500 million) and has low liquidity.
Investors should pay attention to the ongoing financial distress related to Digital Currency Group (DCG) as the outcome could severely impact crypto markets.
Read more: https://t.co/5syXBpEw7q
—Arcane Research (@ArcaneResearch) January 4, 2023
DCG is the largest holder of GBTC, according to SEC filings. DCG CEO Barry Silbert said on January 10 that he used bitcoin as collateral in 2022 to buy back shares, invest in cryptocurrencies, and buy GBTC on the open market using an intra-group loan with Genesis. It announced that the loan will mature in May 2023.
GBTC has been issued based on a total reserve of 630,000 BTC due to the advantage of being able to invest from a brokerage account. GBTC traded at a premium to its underlying asset (BTC) during the bull market, but at the time of writing, GBTC is trading 36% below its underlying asset value.
On January 10, Mike Novogratz, head of Galaxy Digital, a major US cryptocurrency investment company, said, “In the first quarter of 2023, Gemini and Genesis issues still remain, but the market has been cleaned up. As a result, further chain asset sales are unlikely to occur.”
“The outlook for #crypto is not horrible but it’s not great. We’ve got regulatory headwinds we didn’t have before. People are going to cut costs and survive this transition period,” says @novogratz“Crypto is not going away. It’s a pretty clean market right now.” pic.twitter.com/k57ITlRFOV
—Squawk Box (@SquawkCNBC) January 10, 2023
Arthur Hayes, founder of crypto exchange BitMEX, believes the forced liquidation of debt is largely complete as deleveraging has progressed in the cryptocurrency market over the past few months.
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