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Another Crypto Market Collapse

FILE: Representations of the Ripple, Bitcoin, Etherium and Litecoin virtual currencies are seen on a PC motherboard in this illustration picture, February 14, 2018.

The lending unit of crypto firm Genesis has filed for U.S. bankruptcy protection, owing creditors at least $3.4 billion, after being toppled by a market rout along with the likes of exchange FTX and lender BlockFi.

Genesis owes its 50 biggest creditors $3.4 billion, according to Reuters' calculations from the bankruptcy filing. Its largest creditor is crypto exchange Gemini, which it owes $765.9 million. Gemini was founded by the identical twin cryptocurrency pioneers Cameron and Tyler Winklevoss.

Genesis Global Capital's lending unit bankruptcy filing is the latest in a string of crypto failures triggered by a market collapse that wiped about $1.3 trillion off the value of crypto tokens last year.

The bankruptcy "doesn’t come as a shock to the markets," said Ivan Kachkovski, currency and crypto strategist at UBS. "It remains to be seen if the chain effect would go on."

"However, given that the funds have already been frozen for over two months and no other large crypto company reported an associated weakness, it’s likely that the contagion would be limited."

Genesis Global Capital, one of the largest crypto lenders, froze customer redemptions on Nov. 16 after the collapse of major exchange FTX sent shockwaves through the crypto asset industry, fueling concern that other companies could implode.

Genesis' lending unit said it had both assets and liabilities in the range of $1 billion to $10 billion, and estimated it had more than 100,000 creditors in its filing with the U.S. Bankruptcy Court for the Southern District of New York.

Genesis Global Holdco, the parent group of Genesis Global Capital, also filed for bankruptcy protection, along with another lending unit Genesis Asia Pacific.

Genesis Global Holdco said in a statement that it would contemplate a potential sale, or a stock-related transaction, to pay creditors, and that it had $150 million in cash to support the restructuring.

Genesis is owned by venture capital firm Digital Currency Group (DCG).

Genesis was already locked in a dispute with Gemini over a crypto lending product called Earn that the two firms jointly offered to Gemini customers.

The Winklevoss twins have said Genesis owed more than $900 million to some 340,000 Earn investors. On Jan. 10, Cameron Winklevoss called for the removal of Barry Silbert as the chief executive of Digital Currency Group.

While one cryptocurrency, Bitcoin, has rallied so far in 2023, the impact of the market collapse has continued to hit companies in the highly interconnected sector.