Digital Currency Group Halts Dividend Amid Genesis Crisis

Cryptocurrency conglomerate Digital Currency Group (DCG) said it halted dividend payments, telling shareholders that it's focused on strengthening its balance sheet by cutting costs as it copes with fallout from the FTX meltdown that was itself triggered by reporting by one of its own units.

DCG Empire Suffers Shockwaves from FTX Collapse

The action is a further step taken by DCG to contain damage resulting from the collapse of FTX in late 2022, which rocked DCG's portfolio of crypto investments. DCG's problems center on the fate of one of its subsidiaries, crypto broker Genesis Global Trading, which is said to owe creditors more than $3 billion. Genesis has $175 million locked up in the failed FTX exchange and customers of the crypto lender have had their funds frozen since Genesis halted withdrawals on Nov. 16, 2022.

The problems at Genesis have led to a high-profile spat between DCG's founder and chief executive officer (CEO), Barry Silbert, and the Winklevoss twins, founders of crypto exchange Gemini. Genesis and Gemini partnered on the Earn crypto lending product, which also was forced to suspend withdrawals. Cameron Winklevoss said DCG's inability to repay the exchange was defrauding his company and its 340,000 investors, while calling for Silbert to step down.

DCG Dividend Cut May Not Be Enough

DCG's efforts to cut costs by halting its dividend may not be enough to save the troubled conglomerate. Another DCG subsidiary, publicly listed crypto bank Silvergate Capital Corp. (SI), on Jan. 5 announced it experienced a shortfall of more than $8 billion in deposits. "Total deposits from digital asset customers declined to $3.8 billion at December 31, 2022, compared to $11.9 billion at September 30, 2022," Silvergate Capital said.

At that time, Silvergate also announced it laid off 40% of its workforce, or about 200 employees.

Shares of Silvergate are down almost 50% since the Jan. 5 trading update and investors will be concerned about further withdrawals that could push the firm over the brink. Silvergate on Tuesday announced a $1 billion net loss attributable to shareholders for the fourth quarter, swinging from a net profit of $18.4 million in the year-earlier quarter.

The company said in the earnings release: "As Silvergate prepares for what it expects will be a sustained period of lower deposits, it is taking several actions to help ensure the business is resilient, including managing its expense base and evaluating its product portfolio and customer relationships going forward."

The Bottom Line

As fallout over the FTX collapse continues, Digital Currency Group's halt to shareholder dividends adds to a string of negative news about the crypto conglomerate. The company has said it is now focused on cutting operating expenses and preserving liquidity, so more such tough choices may be ahead to stabilize the group.

At the same time, DCG's CEO has failed to clarify whether he will continue to lead the troubled firm amid calls for his resignation.