The impending default of Digital Currency Group by $630 million could precipitate the black swan event predicted by former Coinbase CEO Balaji Srinivasan.
DCG may be the latest victim of an escalating banking crisis that Srinivasan expects will upend the US banking system.
The former Coinbase CTO predicts a black swan event inspired by the Fed
Recently, Balaji Srinivasan, former CTO of Coinbase, bet $1 million that Bitcoin will reach $1 million by June 16, 2023. This increase will take the cryptocurrency market cap to $20 trillion. The tech entrepreneur has softened that initial prediction.
However, he predicts that the Fed is still “printing trillions” of dollars to bail out failing banks. He says uncontrolled money printing could lead to a black swan event.
“I don’t know how many months — years — we have. Just quantitatively, I think we have a 10% chance of a very serious problem occurring in months, 70% in years, 19% in decades, 1% taking a century or something.”
Black swan events are exceptionally rare, unpredictable events with catastrophic consequences. Finance professor Nassim Taleb popularized the concept in his 2007 book.
Taleb argues that these events cannot be predicted because they fall outside the range of probabilistic tools based on large populations and sample sizes.
Signature banks and Silicon Valley Bank have struggled to raise short-term liquidity after depositors withdrew money en masse from accounts not covered by deposit insurance. The First Republic was the latest victim, as the government is in talks to bail out the bank.
Will DCG be the next falling domino?
DCG cryptocurrency group risks default if it is unable to pay or restructure the $630 million it owes Genesis between May 9 and May 11.
DCG borrowed, borrowed Genesis nearly $500 million in 2022 when annual cash flow is $1 billion. However, the Wall Street Journal said that the decline in cryptocurrency prices has likely led to a significant drop in the value of the company’s assets. It also closed the wealth management company in early January to “cut costs”.
To shore up its cash flow, DCG needs to sell additional Genesis assets and refinance a promissory note it gave to lender Three Arrows Capital’s bankruptcy claims.
It offered Genesis creditors special DCG shares in exchange for the $1.1 billion bond, due in 2032. It also wants to extend the deadline for the $630 million loan. Debt restructuring is expected to take months.
outside investors she expressed Little regards the $3 billion source who told the Financial Times that Genesis owes creditors. Gemini cryptocurrency exchange is one of the remaining creditors involved in the mediation with DCG for Money back Genesis owes its debt to Gemini Earn customers.
DCG companies include crypto lender Genesis, asset manager Grayscale Investments, and news outlet CoinDesk. Grayscale is fighting the SEC over the agency’s refusal to greenlight the asset manager’s planned Bitcoin ETF site.
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