- The Dutch stock market is indirectly affected by the FTX scandal.
- As a result, there is a risk of loss of €280 million as the off-chain staking was arranged on its own platform via Genesis Global Capital.
- Bitvavo assured in a statement that customer deposits are safe.
The contagion effect of the FTX scandal reached the Netherlands and therefore Europe. Bitvavo is one of the biggest exchanges out there and also very popular with German investors. But doing business with Genesis could result in a big loss. Because Bitvavo Custody BV apparently arranged the so-called off-chain staking through Genesis Global Capital.
The company is owned by the Digital Currency Group (DCG) and had to stop payments, which has already affected the US Gemini exchange. Off-chain staking pays interest on cryptocurrencies that are not proof-of-stake based. Including bitcoin. Instead, Bitvavo apparently lent assets to Genesis in order to generate a return that could then be distributed to investors.
With Digital Currency Group and its subsidiaries embroiled in the FTX scandal, DCG stumbled. Bitvavo is at risk of around €280 million in default, just over a sixth of the €1.6 billion in assets it currently manages. It’s debatable if you’ll ever see the money again, as both Genesis and the DCG are on the brink.
Customer deposits are secure according to Bitvavo
In a blog post, the exchange announced that all client assets are owned 1:1. According to its own presentation, all clients can be paid without any problems.
The last financial years have been extremely strong for Bitvavo, which is why, according to a report by Het Financieele Dagblad, a failure of Genesis could be covered by Bitvavo’s reserves. In 2021 alone, a profit of 175 million euros would have been made. Despite these positive reports, the case has a bitter aftertaste.
Because The Block reports that the DCG allegedly asked Bitvavo to edit the blog post. Bitvavo’s post only talks about DCG and not Genesis. However, the DCG points out that while subsidiary Genesis Global Capital owes money, the Digital Currency Group itself does not. This might be a failed attempt to calm things down, since the Genesis bankruptcy is well known in Europe, but the DCG behind it is not well known.
Self-preservation is the need of the hour
As the chaos of the FTX bust continues, it becomes increasingly clear that the entanglements between crypto companies are not transparent. In most cases, investors only find out about the crisis when the child has fallen into the well.
If you want to stick with your cryptocurrency investment despite falling prices and choppy waters, you should shovel the coins into your own wallet instead. There they are not protected against price fluctuations, but no one can take away access to them.