DCG’s Barry Silbert reveals crypto firm has $2 billion in debt as he tries to calm investors after FTX
Barry Silbert, the founder of crypto conglomerate Digital Currency Group, has joined a growing list of industry leaders in trying to settle investors’ nerves after the sudden collapse of FTX.
In a note to shareholders on Tuesday, Silbert addressed all the “noise” about the financial health of DCG’s subsidiaries, which includes trading firm Genesis, Grayscale Investments and mining company Foundry.
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Since FTX’s rapid winddown two weeks ago, investors have worried about a crypto contagion affecting every corner of the industry. Lenders have stopped lending, withdrawals have been more difficult and unregulated, little-understood tokens have plunged in value. The leading cryptocurrencies, bitcoin and ether, have also continued their year-long descent.
Silbert, an early bitcoin evangelist who founded DCG in 2015, said that despite the crypto winter, the overall company is on pace to generate $800 million in revenue this year on the back of just $25 million raised in primary capital since inception. Forbes estimates Silbert’s net worth at $2 billion.
“We have weathered previous crypto winters,” Silbert wrote, adding that “while this one may feel more severe, collectively we will come out of it stronger.”
Coinbase, Binance and Crypto.com have similarly done their best to assuage customer concerns to avoid an FTX-type run on customer deposits. They’ve each expressed shock at FTX’s apparent deceit of investors and customers and emphasized that client assets are secure.
That’s all with an awareness that FTX and founder Sam Bankman-Fried betrayed the trust of an industry that was already in the midst of a brutal year of losses. Bankman-Fried said his company’s assets were “fine” two days before he was desperate for a rescue because of a liquidity crunch.
Specific to DCG, investor confidence took a hit in the last week, when the Wall Street Journal reported that Genesis had been trying to raise $1 billion from investors before ultimately halting some withdrawals. There were reports that Genesis would soon file for bankruptcy, which the company publicly refuted.
Fear spread to the Grayscale Bitcoin Trust, known by its ticker GBTC, which lets investors get access to bitcoin through a more traditional security. GBTC is currently trading at a 42% discount to bitcoin, up from a discount of closer to 30% two months ago.
Regarding Genesis’ lending business, Silbert said in the letter that the suspension of redemptions and new loan originations on Nov. 16 was “an issue of liquidity and duration mismatch” in the loan book. These issues, he said, had “no impact” on Genesis’ spot and derivatives trading or custody businesses, which “continue to operate as usual.”
He acknowledged that Genesis has hired financial and legal advisors, as the firm considers its options.
DCG’s debts amount to just over $2 billion. The company loaned Genesis roughly $575 million, priced at “prevailing market interest rates,” which is due in May 2023. It also absorbed the $1.1 billion debt that the bankrupt crypto hedge fund Three Arrows Capital owed Genesis.
With Three Arrows in bankruptcy, DCG “is pursuing all available remedies to recover assets for the benefit of creditors,” Silbert wrote. DCG’s only other debt is a $350 million credit facility from “a small group of lenders led by Eldridge.”
Read the full letter from Silbert below:
There has been a lot of noise over the past week and I want to get in touch directly to clarify where we stand at DCG.
Most of you are aware of the situation at Genesis, but to recap up front: Genesis Global Capital, Genesis’ lending business, temporarily suspended redemptions and new loan originations last Wednesday, November 16 after market turmoil sparked unprecedented withdrawal requests. This is an issue of liquidity and duration mismatch in the Genesis loan book. Importantly, these issues have no impact on Genesis’ spot and derivatives trading or custody businesses, which continue to operate as usual. Genesis leadership and their board decided to hire financial and legal advisors and the firm is exploring all possible options amidst the fallout from the implosion of FTX.
In recent days, there has been chatter about intercompany loans between Genesis Global Capital and DCG. For those unaware, in the ordinary course of business, DCG has borrowed money from Genesis Global Capital in the same vein as hundreds of crypto investment firms. These loans were always structured on an arm’s length basis and priced at prevailing market interest rates. DCG currently has a liability to Genesis Global Capital of ~$575 million, which is due in May 2023. These loans were used to fund investment opportunities and to repurchase DCG stock from non-employee shareholders in secondary transactions previously highlighted in quarterly shareholder updates. And to this day, I’ve never sold a share of my DCG stock.
You may also recall there is a $1.1B promissory note that is due in June 2032. As we shared in our previous shareholder letter in August 2022, DCG stepped in and assumed certain liabilities from Genesis related to the Three Arrows Capital default. As stated in August, because these are now DCG liabilities, DCG is participating in the Three Arrows Capital liquidation proceedings on the Creditors’ Committee and is pursuing all available remedies to recover assets for the benefit of creditors. Aside from the Genesis Global Capital intercompany loans due in May 2023 and the long-term promissory note, DCG’s only debt is a $350M credit facility from a small group of lenders led by Eldridge.
Taking a step back, let me be crystal clear: DCG will continue to be a leading builder of the industry and we are committed to our long-term mission of accelerating the development of a better financial system. We have weathered previous crypto winters and while this one may feel more severe, collectively we will come out of it stronger. DCG has only raised $25M in primary capital and we are pacing to do $800M in revenue this year.
I bought my first bitcoin a decade ago in 2012 and made the decision that I would commit to this industry for the long term. In 2013, we founded the first BTC trading firm – Genesis – and the first BTC fund, which evolved into Grayscale, now the world’s largest digital currency asset manager. Foundry runs the largest bitcoin mining pool in the world and is building tomorrow’s decentralized infrastructure. CoinDesk is the industry’s premier media, data, and events company and they have done phenomenal work covering this crypto winter. Luno is one of the most popular crypto wallets in the world and is an industry leader in the emerging markets. TradeBlock is building a seamless institutional trading platform and as the newest subsidiary, HQ is establishing a life and wealth management platform for digital asset entrepreneurs. Each of these subsidiaries are standalone businesses that are independently managed and are operating as usual. Lastly, with a portfolio of 200+ companies and funds, we’re often the first check for the industry’s best founders.
We appreciate the words of encouragement and support, along with offers to invest in DCG. We will let you know if we decide to do a financing round.
Despite the difficult industry conditions, I am as excited as ever about the potential for cryptocurrencies and blockchain technology over the coming decades and DCG is determined to remain at the forefront.
Quick Charge Podcast: November 29, 2023
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UAW launches campaign to unionize all automakers at once – Tesla, Toyota, etc
The UAW has launched an unprecedented campaign to unionize the entire US auto sector at once, with thousands of auto workers at 13 companies announcing simultaneous unionization campaigns.
After UAW’s big strike win, winning 25%+ pay increases at the “Big Three” American automakers after a simultaneous strike at GM, Ford and Stellantis, the union is looking to maintain that momentum and go bigger.
Immediately after declaring victory, UAW President Shawn Fain said that in the next negotiation in 2028, UAW wants to come back to the bargaining table to negotiate not just with the Big Three, but with “a Big Five or a Big Six” – implying that the union planned to expand to other automakers. And President Biden said that he would support a UAW push to unionize Tesla and Toyota.
Now we’ve seen an official announcement that UAW isn’t just looking to unionize two or three more automakers, but all of them at once. Typically, unionization campaigns focus on a single company at a time, but here UAW is targeting a whole sector with simultaneous campaigns at each individual company. This seems like a tall order, but UAW’s triple-strike against the Big Three seemed to work out well, so it’s now applying that simultaneous tactic to organizing new union drives.
In service of its goal, UAW launched a new website at uaw.org/join, asking workers at each company to sign their union card. The website mentions several automakers by name, and has links to individual campaigns for each automaker where workers can go to express their interest in unionizing:
The campaign was accompanies by a video narrated by Fain making his union pitch. In short, UAW says that automakers and investors are making record profits, but that worker compensation has not kept up. The video specifically mentions Tesla and Rivian’s recent quarterly results, and also states that the Japanese/Korean automakers have combined to make $470 billion in profits, and the German automakers have made an additional $460 billion, in the last ten years.
Since the UAW’s big wins, other automakers have moved to increase pay to (partially) keep up with pay increases at the Big Three. VW, Hyundai, Toyota and Honda have all announced hikes in pay, showing how union wins can buoy an entire industry by making automakers compete for workers with higher pay.
But UAW doesn’t want to stop at a few voluntary pay hikes from other companies, it thinks that unionizing those companies can give workers a better deal. One worker at Toyota’s Georgetown, Kentucky plant put it thusly:
We’ve lost so much since I started here, and the raise won’t make up for that. It won’t make up for the health benefits we’ve lost, it won’t make up for the wear and tear on our bodies. We still build a quality vehicle. People take pride in that, but morale is at an all-time low. They can give you a raise today and jack up your health benefits tomorrow. A union contract is the only way to win what’s fair.
Jeff Allen, 29-year Toyota assembly worker
UAW also quoted workers at Hyundai, VW, Mercedes and Rivian in its release, focusing on how they think unionization would improve safety and benefits at these automakers.
Unions are having a bit of a moment in the US, reaching their highest popularity ever since surveys started asking about them.
Much of union popularity has been driven by COVID-related disruptions across the economy, with workers becoming unsatisfied due to mistreatment (labeling everyone “essential,” companies ending work-from-home) and with the labor market getting tighter with over 1 million Americans dead from the virus and another 2-4 million (and counting) out of work due to long COVID.
Unions have seized on this dissatisfaction to build momentum in the labor movement, with successful strikes across many industries and organizers starting to organize workforces that had previously been nonunion.
But union membership has been down over several decades in the US, and as a result, pay hasn’t kept pace with worker productivity and income distribution has become more unequal over time. It’s really not hard to see this influence when you plot these trends against each other.
It’s quite clear that lower union membership has resulted in lower inflation-adjusted compensation for workers, even as productivity has skyrocketed. As workers have produced more and more value for their companies, those earnings have gone more and more to their bosses rather than to the workers who produce that value. And it all began in the 80s, around the time of Reagan – a timeline that should be familiar to those who study social ills in America.
All of this isn’t just true in the US but also internationally. If you look at other countries with high levels of labor organization, they tend to have more fair wealth distribution across the economy and more ability for workers to get their fair share.
We’re seeing this in Sweden right now, as Tesla workers are striking for better conditions. Since Sweden has 90% collective bargaining coverage, it tends to have a happy and well-paid workforce, and it seems clear that these two things are correlated. And while that strike is continuing, meaning we haven’t yet seen the end of it, most observers think that the workers will eventually get what they want since collective bargaining is so strong in that country.
These are all reasons why, as I’ve mentioned in many of these UAW-related articles, I’m pro-union. And I think everyone should be – it only makes sense that people should have their interests collectively represented and that people should be able to join together to support each other and exercise their power collectively instead of individually.
This is precisely what companies do with industry organizations, lobby organizations, chambers of commerce, and so on. And it’s what people do when sorting themselves into local, state, or national governments. So naturally, workers should do the same. It’s just fair.
Rivian R1T could add a projector for movies on the go
The Rivian R1T might get an exciting upgrade. The electric pickup can drive through 3+ feet of water, rock crawl a 100% grade, and take off like a sports car. But what if the Rivian R1T had a mobile projector that could be easily stored in the gear tunnel? That’s what Rivian is scheming up.
Rivian files patent for R1T mobile movie projector
Rivian’s R1T electric truck is the ultimate adventure vehicle. It recently made history as the first EV to win the off-road Rebelle rally, the longest of its kind in the US.
The truck continues improving through OTA updates that add fun new features, range, and more. One of its most recent improved the ride quality of its vehicles. By building its cars from the ground up, Rivian has a major advantage.
Like Tesla, the EV maker focused on software and “having the ability to configure every piece of hardware,” according to Wassym Bensaid, Rivian’s VP of software development.
Rivian can use this advantage to create unique products that integrate into its EVs. One of its most recent ideas is a mobile projector.
According to a new patent filing for a “vehicle entertainment apparatus,” the Rivian R1T could soon see an added movie projector.
The patent, filed November 23, details a kit that can include a projector, screen, and at least one speaker. The kit is attached to a shuttle that slides in and out of the gear tunnel for easy storage.
Once extended, the projector can be rotated into position. It will also include a mirror to reflect the projected light onto the screen without harming quality. Meanwhile, the pole to hold the screen will fit into several spots.
The setup enables a mobile entertainment setup in little to no time. Everything can be stored in the gear tunnel while not in use. When ready, it can just slide out and set up.
Rivian is including everything needed for the ultimate movie night on the go. And the best part – everything is powered by the R1T.
Although a movie projector may seem like a wild idea to some, that’s right up Rivian’s alley. The company has developed several add-on options like a three-person tent and the Camp Kitchen.
Many were dissapointed when Rivian discontinued the Camp Kitchen from its gear shop earlier this year. The $5,000 add-on included a pull-out kitchen complete with two induction cooktops, a water tank, collapsable sink, and more.
Rivian CEO RJ Scaringe said on the MKBHD podcast that the idea was more popular than expected. However, Rivian is redesigning it for something that doesn’t take up the entire gear tunnel.
Maybe a Rivian R1T movie projector isn’t that far off after all. Meanwhile, Rivian will likely offer a redesigned camp kitchen first.
Would you consider buying Rivian’s movie projector add-on? Let us know what you think in the comments.
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