Dutch Bitcoin Exchange Bitvavo Alleges Digital Currency Group Is Having ‘Liquidity Problems’

Dutch cryptocurrency exchange Bitvavo says it has 280 million Euros ($297 million in USD) stuck with Digital Currency Group (DCG), or 17.5% of the $1.6 billion Euros Bitvavo says it manages in deposits and other assets. Bitvavo assured customers that the situation “does not have any impact on the Bitvavo platform.”

Bitvavo claims in a blog post that DCG is “experiencing liquidity problems due to the current turbulence in the cryptomarket” and that DCG “has suspended repayments until this liquidity issue has been resolved.”

But a DCG spokesperson told Reuters that the funds are held by its “independent subsidiary” Genesis, not DCG. Decrypt has reached out to DCG for further comment. 

Bitvavo retorted to Reuters that it “held DCG responsible for the inaccessible funds.”

DCG, headed up by SecondMarket founder Barry Silbert, is one of the crypto world’s largest and best-known crypto firms. It owns Genesis, Grayscale, CoinDesk, Foundry, and Luno. 

The five weeks since FTX’s collapse and bankruptcy filing have not been good to DCG.

Genesis froze withdrawals on its lending arm one month ago and has not unfrozen them. Gemini, the exchange owned by the Winklevoss brothers (not a DCG subsidiary), in turn had to pause redemptions on its Earn product because its partner on Gemini Earn is Genesis. Genesis reportedly owes Gemini Earn users $900 million. 

The troubles at Genesis have put the finances of DCG into question. 

On November 22, Silbert told shareholders that DCG owes Genesis $575 million but that, “We have weathered previous crypto winters, and while this one may feel more severe, collectively we will come out of it stronger.” Yet on December 3, the Financial Times reported DCG owes Genesis $1.7 billion. 

Grayscale Capital also faces significant headwinds, with New York hedge fund Fir Tree Capital Management filing a lawsuit against the company alleging its Grayscale Bitcoin Trust (GBTC) had “potential mismanagement and conflicts of interest.”

The Grayscale Bitcoin Trust is a fund that enables investors to gain exposure to Bitcoin without buying Bitcoin themselves. It currently trades at a discount of -48.7% compared to the market value of the underlying asset, per data from CoinGlass.

On Friday, crypto analyst Will Clemente, co-founder of Reflexivity Research, noted on Twitter an aggressive selloff in the past 48 hours of many cryptocurrencies tied to DCG, speculating it could be DCG looking for liquidity. 

Filecoin and Flow, both of which Clemente claimed DCG has exposure to, have dropped around 20% and 10% in the past 24 hours according to CoinGecko data.