Wall Street Journal: Financial bosses also “overturned”, how does the founder of DCG get out of the predicament?

Digital Currency Group ( DCG ) CEO Barry Silbert has worked in traditional financial markets for many years. After moving to the encryption field, he successfully created his DCG empire and is now trying to save his brokerage firm from bankruptcy.

A year ago, Barry Silbert’s 40% stake in DCG was worth more than $3 billion. DCG, a crypto conglomerate with tentacles in just about every corner, from lending to bitcoin mining, has a lavish Connecticut office with a marble kitchen, barista and French chef.

Unlike many crypto executives, Silbert, a 46-year-old finance veteran who began his career helping companies restructure and navigate economic downturns, has repeatedly warned on Twitter about the risks he sees in digital assets Behavior that suggests he anticipates possible problems.

Today, Silbert is trying to keep DCG’s lending company out of bankruptcy. Other DCG businesses, such as fund manager Grayscale Investments, bitcoin miner Foundry and media outlet CoinDesk, also face major challenges.

If the collapse of crypto exchanges FTX and Sam Bankman-Fried (SBF) was due to inexperience and fraud, then Silbert’s crisis is the most common mistake of overly optimistic financiers, including growing too fast and doing business with the wrong people. business and borrowing on a large scale, even in the case of DCG, from subsidiaries.

Silbert has built his own company following Buffett’s model, with investors or advisors including former U.S. Treasury Secretary Larry Summers, Silver Lake co-founder Glenn Hutchins and Bain Capital Ventures. Even so, DCG is saddled with debt to expand.

Mike Alfred, founder of Digital Assets Data, which was once part of DCG’s venture capital portfolio, said: “The organization has grown so large that its success seems to imply failure, and Silbert is no longer able to personally participate in the risk management of each subsidiary.”

Among the tough problems Silbert is working on now are:

DCG Lending Company Genesis
The U.S. Securities and Exchange Commission (SEC) has sued Genesis and cryptocurrency exchange Gemini Trust Co. LLC, alleging that the two companies’ programs to provide investors with the opportunity to earn above-market returns in the cryptocurrency space violated investor protections Law
Grayscale Bitcoin Trust (GBTC) Value
Valuations for DCG’s venture capital and its mining, media and other businesses also fell sharply amid a sharp market downturn
“The past year has been the most difficult of my life,” Silbert wrote to shareholders on Jan. 10.

In an interview, he expressed his belief that the crypto industry will bounce back, and so will DCG: “There is no doubt about our survival, we have a great business, great investments, and a great team.”

Silbert said that much of Genesis’s troubles are due to the unexpected collapse of FTX and a large hedge fund client, as well as the collapse of cryptocurrency prices. The company team is trying to find a solution, and other DCG subsidiaries and investments will become powerful entities.

Silbert has successfully weathered economic downturns before. People who have worked with him said that if the crypto market stabilizes, many of DCG’s businesses can remain profitable and have good prospects.

Former investment banker for Houlihan Lokey
He said he bought bitcoin when it was trading below $10, recently at just over $21,000, and peaked at more than $68,990 in 2021. As it rose, he invested hundreds of thousands of dollars of his personal funds in crypto infrastructure projects.

“I’m excited about the potential of a borderless, frictionless form of digital currency, and I’m not going to stop preaching about bitcoin,” he said in 2012, persuading the SecondMarket board to create what would become the Grayscale Bitcoin Trust.

After SecondMarket was sold to Nasdaq
According to people familiar with the matter, there is little opposition from DCG executives to the rapid growth, nor from investors, advisors or financial titans who sit on its board. Of those, Hutchins and Summers have cut ties with DCG in recent months, and representatives for both, as well as Bain, declined to comment.

Unlike some entrepreneurs in the crypto space who make media appearances or make bold predictions about Liren, Silbert generally avoids public speaking. People who have worked with him say he doesn’t like small talk and has three computer monitors on his desk that he uses to watch Twitter and CNBC. His wife once confided to a colleague that while on vacation, Silbert often lugged stacks of books to the hotel pool.

Silbert made it clear to employees that DCG would not go public. As cryptocurrency prices soared and some in the industry made flashy acquisitions, he told colleagues they were accumulating “generational wealth” and urged them not to show off.

A former colleague said Silbert told them, “Don’t try to be a target.” A DCG spokeswoman said Silbert did not recall saying anything similar.

Around 2020, Silbert decided to move most of his business from lower Manhattan to Stamford, Connecticut, where he lives. DCG spent $50 million renovating an office there, hoping to attract younger workers, such as installing a gorgeous kitchen where chefs can prepare lunches, such as grilled octopus, which Silbert usually brings to work.

Genesis is based in New York, and the 2021 Christmas party will be held at Cipriani restaurant, with a full orchestra, DJ, large snack bar, game consoles and champagne tower. Silbert himself did not attend the party.

Mr Silbert dislikes managing employees, according to people close to him. Instead, he focused on allocating funds and handing day-to-day decisions to the management of each division.

In June 2021, with cryptocurrencies still going strong, Silbert tweeted: “There is a daisy chain of borrowers and lenders in the crypto space – most well capitalized but some undercapitalized…Understand the chain The counterparty risk in the link and where the weak ones matter.”

Nevertheless, in early 2022, in addition to the thousands of bitcoins borrowed from Genesis in 2021 and 2022, DCG has borrowed nearly $500 million from its own Genesis lending company to invest in stocks and digital tokens, and Buy back stock from investors.

At the time, DCG was valued at $10 billion and had annual cash flow of more than $1 billion, which justified the borrowing for Silbert and the team, the company said.

Genesis provided a substantial loan to Three Arrows Capital, a Singapore-based hedge fund betting on the cryptocurrency TerraUSD. Last year, Genesis lent $2.4 billion to Three Arrows. Eighty percent of the credit is collateralized in bitcoin, ethereum, Grayscale Bitcoin Trust, Grayscale Ethereum Trust and other illiquid cryptocurrencies, according to court documents and people familiar with the matter.

TerraUSD plummeted in May, Three Arrows collapsed, and Genesis suffered huge losses as the value of its loan collateral plummeted.

DCG absorbed Genesis’ debt and filed a $1.2 billion claim against Three Arrows. The founders of Three Arrows declined to comment.

The FTX debacle in November exacerbated Genesis’ troubles. Genesis has lent hundreds of millions of dollars to Alameda Research, a sister trading firm of the crypto exchange, the Wall Street Journal reported. Genesis said on Nov. 10 that its derivatives and trading business has about $175 million in “locked funds” in its FTX trading account.

Late last year, Silbert began negotiations to save Genesis and reinvigorate DCG, which provided Genesis with a $1.1 billion promissory note after Three Arrows defaulted.