Amsterdam-based cryptocurrency exchange Bitvavo has detailed its plan to recover €280M from US-based Digital Currency Group (DCG) and its subsidiaries. The situation at Bitvavo is the latest in the ongoing meltdown in the crypto industry that has now seen the fall of FTX, once seen as too big to fail.
Earlier this month, Bitvavo mentioned that it had lent €280M to Genesis Global Capital, a subsidiary of DCG. The loan was offered as a way for Bitvavo’s customers to get access to off-chain staking services and thus receive interest on their cryptocurrency tokens. After the collapse of FTX in November, Genesis froze all withdrawals thus locking Bitvavo’s money in DCG.
Bitvavo €280M loan to DCG: What’s the latest?
Since the collapse of FTX and the subsequent crypto crash, there has been a question around Bitvavo’s ability to recoup the loan offered to the DCG subsidiary. However, the Dutch crypto exchange has now assured its customers that the frozen withdrawals at Genesis won’t impact the platform.
“The current situation at DCG does not have any impact on the Bitvavo platform. Bitvavo will continue to offer the services that our customers expect from us,” the company said in a blog post.
After FTX filed for bankruptcy on November 11, a number of crypto players froze withdrawals as a way to prevent liquidity problems. Genesis also froze withdrawals on its platform which forced Bitvavo with no other way to immediately recover the said loan.
Bitvavo, which manages approximately €1.6B in deposits and digital assets, is registered with the Dutch Central Bank (DNB) as a digital assets services provider. This prevents money laundering on its platform but Reuters reports that this provision does not make it subject to “prudential supervision by either the DNB or the Netherlands’ Financial Markets Authority.”
Last week, Bitvavo further confirmed that DCG is facing liquidity problems and the company plans to repay “all outstanding balances” in due course. It also said that DCG has offered a suitable solution to all creditors and their advisors for the repayment of loans.
Founders to the rescue
While it tries to recover the loan from DCG, Bitvavo continues to assure its customers that it is financially healthy. The company revealed that it generated profits of €173M in 2021 and claims to have generated profits of €250M to date in 2022.
“The company has built up substantial reserves to realise its international growth ambitions,” it said in a blog post.
According to Dutch newspaper FD, Bitvavo CEO Mark Nuvelstijn and two other co-founders are helping financially. Nuvelstijn has assured that it will settle customers’ money itself should it fail to recover the €280M owed by DCG. However, the newspaper reports there is a gap of €180M in its balance sheet, which Bitvavo claims to be incorrect.
The financial statement for 2021 reportedly obtained by FD shows it has an equity of €33.8M on December 31 last year. With a result of €65M achieved so far in 2022, it has €100M in net balance. Nuvelstijn and co-founders Jelle de Boer and Tim Baardse have promised to repay €100M of the €110M they received in dividends last year.
“Our auditor has issued an unqualified opinion on 16 December 2022, taking into account the current situation. The annual accounts will be filed and will be available before the end of the year,” the company says.Bitvavo also claims that it has more than adequate financial resources.
FD further reports that Nuvelstijn claims they have already transferred around €95M to the company account. They have also pledged another €25M and reportedly have a credit line to €70M with the banks.
The most popular crypto exchange in the Netherlands will also be able to reclaim profit tax of more than €34M over 2021 if this year turns out to be a loss year. The company accountant Grant Thornton claims Bitvavo is still solvent and stable, offering a further ray of hope to its customers.
Faith in partner
Bitvavo’s books and the rescue act by its CEO and two co-founders indicate that the company might survive despite assets worth €280M locked away with its partner. The situation also shows Bitvavo’s faith in its partner that has now come to bite the company.
When it became clear that crypto loan company Genesis was on the verge of collapse last month, Nuvelstijn first said that Bitvavo was not affected. However, he later acknowledged that Bitvavo had lent €280M in customer money to DCG, the parent of Genesis.
“Based on the financial information obtained about DCG and our recent discussions, it is likely that DCG will repay the outstanding amount,” Nuvelstijn told FD in an email response.
The Dutch crypto exchange now expects to receive the first repayment of the loan in the first quarter of 2023. With trust in cryptocurrency shaken and growing distrust among regulators, Bitvavo not only needs to recover its loan but also be transparent about the situation.