A New Origin Story for the Crypto Crash
For years, the accepted story behind the 2022 cryptocurrency collapse centered on a few key moments: the implosion of the TerraUSD stablecoin, the crash of its sister token Luna, and the high-profile failure of the FTX exchange. These events were blamed for kicking off the so-called “crypto winter,” wiping out over $2 trillion in digital assets and leaving millions of investors burned. But newly unsealed court filings now suggest that the collapse may have started much earlier—and with a very different set of players.
In a 202-page filing made public in May 2025, creditors of Genesis Capital are accusing Barry Silbert, the billionaire founder of Digital Currency Group (DCG), of playing a central role in triggering the market collapse. “Silbert and his cronies recklessly operated, exploited, and then bankrupted Genesis following a spectacular campaign of fraud and self-dealing,” the creditors wrote in the filing, which was submitted in Delaware Chancery Court. Genesis was the lending arm of DCG and is now in bankruptcy proceedings.
Silbert’s Digital Currency Group oversaw a large portfolio of crypto-related businesses, including Grayscale Investments and Genesis. The lawsuit claims that Silbert used these companies to mislead investors, cover up financial holes, and pull hundreds of millions of dollars out of Genesis before the broader market downturn.
Behind the Curtain at Genesis and Grayscale
At the center of the lawsuit is the allegation that Genesis had been in financial trouble long before the market began to crack in May 2022. According to the creditors, Genesis became technically insolvent as early as 2021 due to its exposure to the Grayscale Bitcoin Trust (GBTC), which began trading at a discount to Bitcoin around February of that year. The Grayscale trust was once one of the only vehicles for institutional investors to gain exposure to Bitcoin without owning it directly. However, its structure included a six-month lockup period for new investors and high fees, which eventually made it less attractive.
Despite the sliding value of the trust, Genesis allegedly encouraged hedge fund Three Arrows Capital to keep using GBTC shares as collateral to borrow more money. The filings say that Genesis was instructed not to hedge or sell the trust and was pressured to overvalue the holdings, even as their market price dropped.
By early 2021, “Grayscale Bitcoin Trust no longer traded at a premium,” the court documents state. Still, Genesis pushed forward with more loans backed by GBTC, particularly to Three Arrows Capital, which was also investing heavily in Luna and TerraUSD. Eventually, this strategy would collapse, taking both Three Arrows and Genesis down with it.
Ignoring the Warnings
The court documents reveal that in April 2022, consulting firm Oliver Wyman gave Silbert and DCG a stark warning. The report laid out scenarios for a potential market meltdown and the “ripple effects across [the] broader crypto market” if Genesis’s largest borrowers, like Three Arrows, failed. According to the creditors, the report showed that DCG was “likely unprepared.”
Silbert’s response came just one day after receiving the warning. Instead of strengthening Genesis or taking precautions, the creditors say he started demanding loan repayments. He called in $4 million in loans and then, in the following days, DCG and its subsidiaries requested that Genesis repay another $125 million. At the same time, Genesis continued telling investors—including Mark Cuban—that the platform was sound.
Cuban, who owned the Dallas Mavericks at the time, reportedly received a message from Genesis stating that there were “no liquidity issues.” When asked for comment on the recent filing, Cuban replied, “First I’ve heard of it.”
Market Confidence Crumbles
Three Arrows Capital collapsed in June 2022, leaving Genesis with a $1.1 billion hole in its balance sheet. A message from Silbert at the time, quoted in the filings, said, “The hole in Genesis equity due to the Three Arrows exposure is something…we will need to fill by 6/30.”
Instead of disclosing the crisis, DCG allegedly worked with investment bank Ducera Partners to draw up a promissory note worth $1.1 billion, payable in 10 years at just 1% interest. The creditors claim this note was used to create a “materially false and misleading” balance sheet in an effort to buy time and keep customers from fleeing.
Meanwhile, Genesis executives were asking their largest customers—such as crypto exchanges Bitvavo and Gemini—not to withdraw their funds. These requests kept more than $3 billion on the platform during a time of deep instability. In total, the creditors allege that over 140 transactions took place during 2022 that drained more than $800 million from Genesis to Silbert, his brother Alan, and others close to the company.
Rewriting the Collapse Timeline
Most public explanations of the crypto crash begin in May 2022 with the fall of TerraUSD and Luna, which collectively lost about $60 billion in value. These failures quickly pulled down other firms that were heavily invested in them, including Three Arrows Capital, Voyager Digital, Celsius Network, and eventually FTX.
FTX, led by Sam Bankman-Fried, was seen as the final blow. It filed for bankruptcy in November 2022 after revelations that it had misused customer funds. Bankman-Fried has since been convicted and sentenced to 25 years in prison.
But the new court filings argue that the real beginning of the collapse came in February 2021, when Grayscale Bitcoin Trust began trading at a discount. From that moment on, DCG and Genesis allegedly continued promoting flawed financial products, encouraged over-leveraging, and failed to take action even after being warned.
A Pattern of Industry Failures
Silbert’s alleged misconduct adds another layer to what was already a catastrophic year for crypto. In 2022, nearly every major failure followed a similar pattern: overconfidence, poor risk controls, and misleading information. The collapse of TerraUSD exposed the dangers of algorithmic stablecoins. FTX’s downfall revealed how customer funds could be misused in an unregulated space. Massive cyberattacks resulted in over $3.8 billion in losses. The lack of effective regulation allowed firms to operate without proper oversight, and when the market turned, there was little to protect investors.
The case against Barry Silbert shows that some of the biggest names in the industry may have played a deeper role in creating the conditions for collapse. And if the creditors’ claims are upheld, it may turn the spotlight from just failed tokens and exchanges to the broader network of financial practices that held the market together.
What Comes Next
Creditors are now seeking $2.3 billion in damages, which they want paid in digital assets—an unusual request that reflects their bet on a crypto rebound. DCG has already settled with the Securities and Exchange Commission for its role in the Genesis failure but remains in legal battles with both Genesis and the New York attorney general’s office.
In response to the recent lawsuit, a DCG spokesperson stated, “This is a baseless lawsuit that recycles the same tired, two-year-old claims in an opportunistic attempt by sophisticated investors to extract additional value from DCG. We will vigorously defend ourselves against these spurious claims.”
While the legal process will take time, the filings have already begun to change the way people view the 2022 crash. What once seemed like a sudden storm may have actually been a slow-building disaster—one built on fragile financial structures, ignored warnings, and a focus on profit over responsibility.
