Digital Currency Group Reports Over $1 Billion Loss Due to 3AC Collapse

Terrill Dicki   Mar 05, 2023 09:54

Digital Currency Group (DCG), a cryptocurrency venture capital conglomerate, has reported losses of over $1 billion in 2022. The losses were primarily due to the collapse of Three Arrows Capital (3AC), a crypto hedge fund that DCG had invested in, and falling cryptocurrency prices.

According to DCG's Q4 2022 investor report, the losses were mainly caused by the impact of 3AC's default on Genesis, DCG's lending arm. Genesis filed for Chapter 11 bankruptcy in late January, as it was 3AC's largest creditor, having loaned the now-bankrupt hedge fund $2.36 billion. 3AC filed for bankruptcy in July 2022.

DCG's fourth-quarter losses came to $24 million, while revenues came in at $143 million. Full-year revenues for DCG came in at $719 million, with total assets of $5.3 billion. DCG's cash and liquid holdings amounted to $262 million, and its investments, such as shares in its Grayscale trusts, amounted to $670 million. The remaining assets were held by divisions of its asset management subsidiary Grayscale and DCG's Bitcoin (BTC) mining business, Foundry Digital.

DCG's equity valuation came in at $2.2 billion, with a price per share of $27.93, which the report said was "generally consistent with the sector's 75%-85% decline in equity values over the same period." However, the company said it "hit a milestone" with the restructuring of Genesis.

In February, DCG proposed an agreement that would see its equity share in Genesis' trading entity contributed and all Genesis entities brought under the same holding company, with its trading entity sold off. DCG would also exchange an existing $1.1 billion promissory note due in 2032 for convertible preferred stock, and its existing 2023 term loans with an aggregate value of $526 million would be refinanced and made payable to creditors.

According to a Genesis creditor, the plan "has a recovery rate of approximately $0.80 per dollar deposited, with a path to $1.00" for those owed money by the firm.

DCG declared on November 1, 2021, that its valuation was more than $10 billion, following the sale of $700 million worth of shares to companies like Alphabet Inc., Google's parent company. However, the recent losses have brought its valuation down significantly.

The collapse of 3AC and Genesis' subsequent bankruptcy filing has had a major impact on DCG's financials. The company will need to continue to navigate the volatile cryptocurrency market and work towards resolving its outstanding liabilities to regain investor confidence.

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