Happy Monday, everyone. Today marks the lead-up to Thanksgiving weekend here in the U.S., and the start of the World Cup (go England!), but, for the crypto world, the focus remains very much on the FTX implosion—and which other companies could get swept away in the fallout. Just as Lehman Brothers' bankruptcy in 2008 led to the collapse of other big finance players like Bear Stearns and Washington Mutual, the end of FTX is likely to have a domino effect. But who could get toppled?
Along with lender BlockFi, which filed for Chapter 11 last week, I keep hearing rumors of three companies that are in trouble. The first is Genesis. The trading arm of crypto conglomerate DCG has halted withdrawals—always an ominous sign—and is reportedly insolvent partly due to holding piles of loans owed by FTX and Three Arrows Capital. The company is expected to file for bankruptcy or possibly finagle a long-shot arrangement to get acquired by a traditional investment firm like Blackrock.
Genesis has long been one of the biggest and most sophisticated players in the world of crypto finance, and its undoing would create unpredictable knock-on effects. (To get a better understanding of the firm's operations, check out this excellent Twitter thread by CPA Ram Ahluwalia, who describes Genesis's role as a pioneering crypto-prime brokerage).
Then there is Crypto.com, the Singapore-based exchange that appeared on the scene last year and blew piles of money on a Super Bowl ad, some ill-advised Matt Damon endorsements, and renaming the Staples Center in Los Angeles. In response to rumors the company is in trouble, Crypto.com's CEO took to YouTube last week to assure everyone that everything's just fine, the company's balance sheet is healthy, and its exposure to FTX was minimal. Let's hope that's true. But it's hard not to be skeptical of a firm that keeps 20% of its reserves in Shiba Inu coins and whose native token is in free fall.
The other name that keeps coming up is Silvergate, which isn't a crypto company but a bank that caters to them. While most banks are skittish about accepting crypto clients, the one-time real estate lender went all in and fared well until this year's downturn, which has seen its stock fall an eye-watering 90%. Silvergate's CEO told the Wall Street Journal that the current share price reflects a "fundamental misunderstanding" of its business. Tell that to the market where traders have made Silvergate the most heavily shorted regional bank based on fundamentals. Yikes.
This is just a partial list of potential dominoes. As Warren Buffett says, "When the tide goes out, you see who is swimming naked"—and it's far from clear the crypto market has reached low tide.
Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts
