Digital Currency Group (DCG) reports a 23% increase in Q3 revenue, rising from $153 million in Q2 to $188 million in Q3, despite the decline in cryptocurrencies. DCG’s Grayscale Investments, the world’s largest Bitcoin fund, has won a legal battle that could potentially attract institutional Bitcoin inflows. The New York Attorney General has filed a $1.1 billion lawsuit against DCG, Genesis, and the Gemini exchange for defrauding Gemini customers.
Digital Currency Group (DCG) recorded a 23% increase in third-quarter revenue after repaying loans to its Genesis subsidiary. Its consolidated revenue increased from $153 million in the second quarter to $188 million in the third quarter despite falling cryptocurrency prices.
DCG’s earnings before interest, taxes, depreciation and amortization were $69 million. The company paid $225 million of the money it owes to Genesis, one of the first companies to build its business around lending money to crypto companies.
The Numbers Are Promising for DCG and Grayscale
The company’s encouraging figures are due to a rise in the price of Bitcoin to over $35,000. DCG’s Grayscale Investments, which operates the world’s largest Bitcoin fund, scored a legal victory that may attract institutional flows into Bitcoin, giving its parent and the market a boost.
Grayscale fought the US Securities and Exchange Commission (SEC) over the agency’s rejection of Grayscale’s application to convert a closed-end Bitcoin fund into an exchange-traded fund (ETF). The fund’s lack of a redemption mechanism means its share price has fallen below the net asset value of the underlying Bitcoin.
Since then, the expectation that the SEC will approve several ETFs has caused the discount to narrow. A royal approval could see Grayscale earn millions in management fees.
DCG and Genesis Blamed in New Lawsuit
Last week, New York Attorney General Letitia James sued DCG, Genesis, and the Gemini exchange for allegedly misleading and defrauding 230,000 Americans for a total loss of $1.1 billion. Specifically, the civil lawsuit is related to Gemini Earn, an investment product that was marketed to customers as a safe way to earn interest on cryptocurrencies, up to 8%.
Genesis and DCG have been accused of not evaluating the quality of the loans the former granted. They had also attempted to hide the losses suffered from their ill-calculated action. The CEOs of both companies are equally accused in the lawsuit of misleading the public about Genesis’ financial health.
DCG has vowed to challenge the allegations in court. “We assure you that we will vigorously defend against these claims and hope to be vindicated in this case.”
Genesis and Gemini also face SEC accusations of offering Gemini’s Earn products as unregistered securities. Genesis benefited from the difference between Earn Yield and its own interest rate. According to the investigation, Gemini Exchange, run by the Winklevoss twins, Cameron and Tyler, was found to have lied to investors about the risks involved in investing in the Earn program.
Additionally, assets contributed by Gemini clients were pooled and given to Genesis, the crypto lending subsidiary of Digital Currency Group. Genesis subsequently gave these funds to large institutions and only returned a fraction of the profits.
James discovered that at one point, these Genesis loans were even stressed and high risk. It was concentrated among a few third parties, including Alameda Research, the trading company associated with the now-defunct cryptocurrency exchange FTX.
By Leonardo Pérez
