Why Genesis going into bankruptcy is good for Bitcoin

in bitcoin •  last year 

Genesis, the lending platform, went into Chapter 11 bankruptcy last week.

Their business model was as follows: bitcoin holders were persuaded to join Earn/Lend programs where they earned a small amount of interest. But bitcoin is a proof-of-work coin, not a proof-of-stake one, so where was the interest coming from?

These Earn programs lent the coins to Genesis, who re-lent them at a higher interest to short-sellers. The difference between the two interest rates was Genesis' profit. The short-sellers then sold the coins, bought them back cheaper, and returned the coins with interest; their profit was the sell price less the buy price less interest.

Thus bitcoin owners seeking a small amount of interest enabled short-sellers to drive bitcoin's price from $69,000 to $16,500.

With Genesis gone, short-sellers are going to struggle to borrow the coins they need. No wonder bitcoin has perked up!

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