Genesis Capital has originated over $1 billion in crypto loans even as the bear market reigns

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QUICK TAKE

  • Genesis Capital announced Wednesday it has originated over 1 billion in loans in ~10 months, doubling originations in Q4 alone
  • An increase in volatility and the ability to engage in both spot and futures markets lead to outsized borrowing for the quarter

Genesis Global Trading, a market making trading firm in New York, announced Wednesday that it has originated more than $500 million worth of loans in digital assets to its institutional clients in the 4th quarter of 2018, pushing their cumulative origination volumes to more than $1 billion over the last 10 months.

The firm, formerly known as SecondMarket, launched as a crypto trading firm in 2015. The company launched its crypto lending business last March, Genesis Capital, which quickly became popular among its trading clients looking to borrow digital assets as a way to hedge their investments or short a crypto. Currently the firm manages a book of over $153 million in loans. The firm recently launched lending in fiat, which makes up a tiny fraction of the total loans originated.

“November and December were the most active months to date as we saw new hedge funds and trading firms utilizing “spot” borrow,” the firm said in its Digital Asset Lending Snapshot. “This growth combined with new business lines (e.g., lending cash for crypto collateral) has driven our loan book to $153M in active loans outstanding, up $23M from Q3, despite a 44% price decline in bitcoin (BTC).”

Ether shorting has driven some of the growth in the firm’s lending business, but traders have been largely unsuccessful. As noted by the report, Ether borrowing more than doubled since Q3 as borrowers looked to short the coin. But data shows many traders were unable to time the market, opening larger positions after selling momentum had already kicked in.

Largest 4Q ETH origination days’ +/- 7 day returns highlight difficulty timing momentum

Meanwhile, traders found more success outside short ETH momentum strategies. Genesis said in the report that an increase in volatility and the ability to engage in both spot and futures markets allowed traders to successfully run basis trade arbitrage on BTC, leading to increased borrowing for the underlying bitcoin market.

Moving forward, the firm is looking to further integrate its two businesses to make it easier for its clients to trade. The firm already removed a step for its hedge fund clients that allows them to settle directly between Genesis Capital and Genesis Trading. That shaved an hour or so off the process, CEO Michael Moro told The Block. Previously, borrowers would have to take delivery of the borrowed coins and then turn around and settle it with Genesis.

Next, Moro said the firm plans to integrate the two companies into one user interface. To that end, the company is hiring out developers. Even as the crypto bear market reigns, it has been a lucrative time to run a borrowing business in the market.

As reported by Bloomberg, BlockFi — another lending firm — has seen its revenues and customer-base grow 10-fold since June, riding the bullish wave. A diverse set of investors have picked up on the New York-based firm’s successes. The firm has raised nearly $60 million to date — a mixture of lending and equity capital — with a roster of investors that includes the likes of Fidelity, Susquehanna, and others. Salt Lending, another lender, has been hiring at a fast clip, Bloomberg noted.

“Momentum trading, expedited short settlement, basis trading, and cash lending will all be key drivers of lending growth in 2019 and we’re excited to see the market we pioneered continue to mature,” the report concluded.

Moro said there could be more upside for the firm given it has done little marketing around the product, adding “Most of the loans we’ve originated are from legacy Genesis counter-parties. Everything else has really been through word of mouth.”