Despite a massive sell-off in the crypto market last year in 2018, Genesis Capital announced on Wednesday, January 30, that it has processed over $1.1 billion of crypto loans by the year-end. The New York-based shared its Q4 Digital Asset Lending Snapshot on Wednesday.
The report shows that in the last quarter of 2018, Genesis processed more than $500 million worth of cryptocurrency loans. This is a 100% jump in the total amount of crypto loans processed six months earlier, when Genesis started its crypto lending business around March 2018.
According to the report, a majority of the loans were issued to corporate borrowers like trading firms and hedge funds. Also, these loans were issued in the form of either BTC, ETH, or other digital currencies. Despite over 80% correction in the BTC price last year, Genesis still manages $153 million in active loans. The Digital Asset Lending Snapshot reads:
“November and December were the most active months to date as we saw new hedge funds and trading firms utilizing “spot” borrow. 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).”
Some Insight Into Genesis’ Portfolio
Genesis notes that nearly 75% of its portfolio is denominated by BTC lending while Bitcoin Cash (BCH) contributes to 0.4% loans. The BCH-based borrowing saw a major decline due to the outstanding loans prior to the November hard fork. “Managing forks is a precarious process when lending digital assets,” Genesis said.
Between the third and fourth quarters, Ethereum borrowing shot up rapidly but still accounts for 8.1% of Genesis’ loan book. Below is the chart for Genesis’ asset composition from March 2018 to December 2018.
Investors Borrowing to Fund Business Operations and Hedge Investments
Genesis says that borrowers used its loan funds either to hedge their investments, fund their business operations or even to bet of the price fall of certain cryptocurrencies. The report states:
“Prior to Q4, 98% of BTC on loan was used exclusively for hedged use cases such as arbitrage, basis capture, and remittance. On November 14th, the price of BTC fell 16% in a single day which jumpstarted a period of increased loan origination as short sellers piled on with unprecedented size.”
It further adds: “Many of the borrowers during this time period leveraged the synergies between our lending and trading businesses and shorted directly through Genesis, heavily increasing sell-side volume in the latter half of the quarter”.
Although ETH contributes to a very small part of the Genesis portfolio, short-term borrowing for ETH shot up by December-end as active hedge funds started putting short positions during market volatility.
“This indicates a lot of short-term momentum shorting, where borrowers would continue to bet against ETH, even after major declines in price,” said Genesis.
Genesis Also Supports Fiat Currency Lending
Citing a huge client demand, Genesis also introduced fiat cash lending facility in the last quarter of 2018. Genesis notes: “Long-term digital currency investors sitting on appreciated assets can borrow against their crypto holdings to get cash liquidity without triggering a taxable event.”
While reporting the scenario of crypto lending business this year, Genesis 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”.