Dispatch #115: A DCG Domino?

Nov 26, 2022 4 min read

Dispatch

In this patch of your weekly Dispatch:

All eyes on Genesis and DCG
Fed looks to start slowing down rate hikes
Bitcoin profitability effectively worst ever

The Big Idea

Are We Nearing the End of the Contagion?

As the fallout from the collapse of FTX works its way through the system, much attention is being paid to where other companies might be compromised. The big focus for much of the past week has been Genesis, and by extension its parent company Digital Currency Group (DCG).

In the wake of FTX, there have been big questions about Genesis Lending’s solvency (and DCG’s ability to fill the hole). For over a week DCG boss Barry Silbert had said nothing until releasing a letter to shareholders on Tuesday that sought to calm things down.

In truth, the crypto industry remains locked in а fierce debate about what they expect to happen with DCG. Barry and DCG say in their letter that they’ve been here for a decade and they’re here for the long term, and we’re absolutely hoping that’s true, although we have no exposure to the firms.

To the extent that there’s good news, it’s now been a couple of weeks and at the moment, DCG really does seem like the last big player to be threatened by FTX’s flameout. Could the end of (at least the financial part of) contagion be near?

A last note. This week was Thanksgiving in the United States. We’re very grateful to all of our readers, wherever you are. Despite everything that the industry has been through, the fact that you’re still here, still reading, still engaging, and still building is an amazing source of inspiration for us to in turn keep building!

The Latest In…

The Nexo Wallet

And talking about building… Close to 20,000 people signed up for the beta of our Nexo Wallet in the first 24 hours upon announcing our non-custodial product. 🔥 Were you one of them? With the Nexo Wallet, our product team is showing it is not resting on its laurels and Nexo is listening to our customers’ evolving needs. Sign up to get early access for the wallet that will allow you to build your decentralized identity for the ever-expanding Web3 ecosystem. Join the beta!

The Latest In…

The Macro Landscape

You’ll remember that before all of this FTX stuff happened, crypto was moving in lock step with risk assets in the broader market. The entire discussion was about the Fed and when they would start to signal a shift in monetary policy. FOMC meeting minutes from last month show that “a substantial majority” of Fed members believe slowing the pace of hikes would soon be appropriate. There was not quite as much consensus, however, on a higher-than-expected terminal rate which Powell had discussed – much to the market’s dismay – at last FOMC’s post-meeting press conference. All in all, while the minutes don’t signal some massive pivot right away, they do suggest that the Fed is starting to ease off the brake, and that’s a good thing for markets.

The Latest In…

Bitcoin Mining

One of the most interesting aspects of the Bitcoin ecosystem right now is the mining space. On the one hand, we’re dealing with depressed prices. On the other, hashrate and mining difficulty remain near all-time highs. This is creating intense pressure on miners and interesting dynamics in terms of consolidation.

Compute North, which filed for Chapter 11 in September, is selling two “turnkey” crypto mining assets to Foundry (another DCG subsidiary).
Core Scientific, the world’s largest public miner, has been giving warnings of bankruptcy risk.
CORZ’s stock crashed by about 80%.
In New York, newly-elected Governor Kathy Hochul signed into law a 2-year moratorium on new Bitcoin mining.

Like everything else in the industry right now, mining is going through a difficult period. We have no doubt the industry will be even stronger on the other side.

The Week’s Most Interesting Data Story

Bitcoin Market Profitability Is Abysmal

Okay friends, we promise we’re not trying to depress you. We’re really just trying to flush all the bad news out of the system as fast as we can, as well as make you feel like a total B.A. for sticking around through the pain. MVRV is a measure of market profitability that looks at unrealised gains or losses among held Bitcoins. Right now, the adjusted MVRV is 0.63, which means that the average BTC investor is holding an unrealized loss of -37%. Some might argue, however, that it’s a good entry point, so, yeah, we’re in it!