Crypto rally boosts Digital Currency Group’s financials amid lawsuits and Genesis bankruptcy

After starting 2023 in the depths of a bear market, the crypto empire Digital Currency reported a strong fourth quarter, as well as a valuation of $4.4 billion and an investment portfolio of nearly $1 billion, in a letter sent to shareholders on Monday.

For fiscal year 2023, DCG reported EBITDA of about $275 million, up from $261 million in 2022, as consolidated revenue declined to $749 million from $813 million. Quarter-on-quarter EBITDA rose more than 40% to nearly $100 million, as the fourth quarter in 2022 produced a loss of $7 million.

Founded in 2013, the Barry Silbert-led company has long been a bedrock of the crypto industry, with portfolio companies including the asset manager Grayscale, the lender Genesis, and, until last year, the trade publication CoinDesk.

Thanks to its outstanding loans through Genesis, Digital Currency Group began flailing with the failure of the hedge fund Three Arrows Capital in 2022. The collapse of another key counterparty, FTX, drove Genesis into bankruptcy in early 2023, embroiling DCG in a series of lawsuits with former partners and regulatory agencies, including the Securities and Exchange Commission and the New York Office of the Attorney General.

After a disastrous 2023, which included public spats between Silbert and the Winklevoss twins, Monday’s shareholder letter aims to help dispel doubts about the imperiled empire, even as lawsuits continue to swirl.

A mixed bag

Despite myriad legal challenges, Digital Currency Group benefited from a rally in Bitcoin prices to close the year. Part of this was spurred by one of DCG’s portfolio companies, Grayscale, which won a battle with the SEC in August to convert its longstanding Bitcoin trust into an exchange-traded fund. As of Monday, Grayscale’s ETF has a market cap of around $23 billion, with the firm charging fees of 1.5%.

Digital Currency Group was further boosted by $38 million in revenue from its mining company Foundry in the fourth quarter of 2023, although the figure was still down 22% quarter-over-quarter due to lower mining prices.

The letter also cites the November sale of CoinDesk, a leading crypto publication, to the digital assets exchange Bullish, although it doesn’t specify a deal size. CoinDesk spurred the collapse of FTX after publishing the balance sheet of the associated trading firm Alameda Research, although the ensuing bear market caused Digital Currency Group to cut off funding to the outlet, which laid off nearly 50% of its staff in 2023 before further restructuring announced last week.

Genesis is another obstacle, with Digital Currency Group challenging its portfolio company’s bankruptcy plan. In a court filing on Friday, DCG attorneys requested an emergency conference in the Chapter 11 proceedings, disputing a payment plan proposed by the bankruptcy estate and writing that the Genesis bankruptcy estate’s proposals represent a “gross abuse of process and breach of fiduciary duties.”

While Genesis has settled its two lawsuits from the SEC and New York’s attorney general, Digital Currency Group is still mired in litigation, with Attorney General Letitia James last week ramping up her fraud charges against Silbert and his empire to $3 billion.

“This is the same baseless complaint recirculated to generate another round of press headlines,” the shareholder letter read, adding that Genesis’s settlement with the Office of the Attorney General was a further attempt to circumvent bankruptcy law.

“We will continue to fight this attempt to undermine the law,” wrote the investor relations team.

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