Even in the thick of 2018’s crypto bear market, a related subsector has seen an unprecedented boom, with institutions throwing millions of dollars at a well-recognized over-the-counter (OTC) player in the cryptocurrency market.
Institutions Borrow $553 Million In Crypto In 6 Months
Per a brief report from New York-based Genesis Global Capital, titled “2018 Q3 Digital Asset Lending Snapshot,” at the start of March 2018, the firm launched the crypto industry’s first-ever institutional lending business to go hand-in-hand with Genesis’ already-established OTC desk.
Although the venture was nothing more than an experimental stab at a potentially revolutionary service, in the same report, the American company revealed that its clients quickly gained interest in crypto asset loans. Elaborating, Genesis Capital wrote:
“Over the past year, through client feedback and the rise of derivative marketplaces, we saw a meaningful increase in the number of market participants wanting to borrow and/or lend digital currencies. We built this new business segment to meet those demands and have experienced an incredibly strong reception since our launch.”
This “incredibly strong reception” has seemingly taken the form of “60+ institutional counterparties,” who have requested for cryptocurrency loans across “nearly a dozen digital assets” in the past six months. According to statistics from the firm itself, these loans amounted to a monetary value of $553 million, a jaw-dropping sum to say the least.
The firm added that while many of its institutional debtors have already paid their loans in full, there is still $130 million worth of active loans, which is a figure that has only grown of the course of the lending service’s short, but fruitful lifetime. This indicates that the bears of today’s market haven’t deterred these investors one bit, contrary to popular belief.
Image Courtesy of Genesis Capital
In fact, as alluded to in the official report, 2018’s tumbling crypto prices may have only enticed Genesis Global’s clients, which primarily consist of hedge funds, trading funds, and crypto startups, to borrow digital assets to act as working capital.
Genesis pointed out that hedge funds “generally have thesis-driven views on assets,” so the arrival of its product, coupled with the bearish market trend, likely catalyzed traditionalist funds to borrow crypto assets to short the market in longer-term timeframes. On the other hand, the company added that trading firms, who have a comparable large penchant for risk, have sought to borrow digital assets on short-term bases to take advantage of arbitrage opportunities, which are present in emerging markets.
Last but not least, Genesis Capital brought attention to loans requested by fintech startups, which may actively use crypto assets “as a means of working capital to scale their businesses, such as remittance payments to customers.”
Regardless of how the borrowed funds are used, the bottom line is that institutions are still willing to throw copious amounts of free-flowing capital at this space.
Genesis Global Clients Bearish On Bitcoin, Not Ethereum
Following Genesis’ holistic highlight of its lending product, the startup went on to outline the exact specifics of the $553 million in loaned crypto assets. Although there were many statistics that caught the eyes of readers, a few points stood out to many astute traders.
Just weeks after the service’s March launch, the loan book primarily consisted of positions in Bitcoin and Ethereum, which could be attributed to the company’s claim that hedge funds were initially the only institutions to use the product. But, in the following months, in correlation with the sharp decline in the value of Ether, loan positions in Ripple’s XRP, Litecoin, and Ethereum Classic, began to take hold of Genesis’ balance sheet.
Now, only 4 percent of active loans pertain to Ether, while Bitcoin has seen 62.6% of active loans flood into its borders. According to Michael Moro, the chief executive at Genesis, a majority of loans have been requested by hedge funds, who have actively used these funds to actively hedge their positions on derivatives markets. This likely indicates that these institutions are more bearish on Bitcoin than they may be on Ethereum, which is a welcome sign for the latter crypto asset, which has been beaten and bruised to hell and back.
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