Genesis faces huge losses, BlockFi’s $1B loan, Celsius’s risky model

It’s been another day of watching the ripples of contagion spread through the crypto market.

With Three Arrows Capital being ordered into liquidation by a British court, details have also emerged today of BlockFi liquidating a $1B loan to 3AC, and the fallout from the insolvency was partly to blame for lending firm and market maker Genesis Trading facing losses of “a few hundred million dollars.”

Withdrawals remain suspended at the possibly insolvent lending and borrowing platform Celsius, which was revealed to have had a highly risky 19 to 1 assets-to-equity ratio before it ran into liquidity troubles this year.

Celsius’ risky business

According to documents reviewed and reported on by the Wall Street Journal (WSJ) on June 29, Celsius was operating on very fine and risky margins as it ballooned in value over 2021.

According to documents prepared before the last equity raise, Celsius, which claimed to be a less risky alternative to a bank, had an assets-to-equity ratio of $19 billion to $1 billion midway through last year, while also issuing out many loans that were undercollateralized.

The assets-to-equity ratio refers to the proportion of a firm’s assets that has been funded by shareholders. The ratio generally represents an indicator of how much debt a firm has leveraged to finance its operations, with higher ratios often suggesting a firm has utilized substantial financing and debt to remain afloat.

The ratios differ from sector to sector, as do the assets held by the specific entities, however Celsius’s already high 19-to-1 ratio is seen as extra risky due to the firm’s exposure to crypto, leverage and lending.

Eric Budish, an crypto-versed economist at the University of Chicago’s business school stated that “It’s just a risky structure,” as he likened Celsius’ operations to that of financial firms in the lead up to the 2008 housing bubble:

“It strikes me as diversified as the same way that portfolios of mortgages were diversified in 2006. It was all housing— here it’s all crypto.“

Reports also surfaced that Voyager Digital has sent more than $174 million to Celsius over the past few months. The transactions were confirmed by analytics platform Nansen this week, however the nature of the funding or whether it is a loan is unclear.

Genesis facing hundreds of millions in losses

Digital Currency Group’s market maker and lending firm Genesis Trading is reportedly facing losses in the hundreds of millions according to…