Genesis Global Trading has released a financial report for the third quarter that shows the U.S. cryptocurrency lender provided $553 million worth of digital asset loans. These were issued to corporate borrowers such as hedge funds and trading firms in the form of BTC, BCH, ETH and other cryptocurrencies.
Institutional Investors Borrow to Boost
Working Capital, Short Cryptocurrencies
Genesis Global Trading — an affiliate of Los Angeles-based Genesis Capital — said it has $130 million in active loans outstanding, from a total of $553 million in originations, since it started providing digital currency loans to its customers in March of this year. About 50 percent of the total loan portfolio is denominated in bitcoin core, while 25 percent is ethereum loans, according to an online statement published on Oct. 18. Nine other cryptocurrencies, including bitcoin cash, accounted for the remaining 25 percent of the loans it offered throughout the period.
The registered over-the-counter digital currency dealer said that borrowers typically use its loans to fund their business operations, hedge derivative investments or to bet that the price of certain cryptocurrencies will fall. “At launch, lending activity was driven largely by speculative hedge funds,” the company said. “BTC loans primarily serviced working capital needs, while ETH loans were primarily used for short interest.”
Most of the funds that Genesis Global Trading provides as loans are borrowed from elsewhere at interest rates of between 5 to 7 percent. The company then goes on to charge rates of 10 to 11 percent when it lends, Michael Moro, chief executive officer of Genesis Global Trading, recently told Bloomberg. At the beginning of the third quarter in July, BTC dominated the company’s loan portfolio, followed by ETH. But as the price of ether has fallen more than 80 percent since March, interest in the cryptocurrency has started to decline.
BTC Dominates Loan Portfolio as ETH Declines
By the end of September, ether accounted for just 3.7 percent of the company’s loan book, while BTC rose to 70 percent. Borrowers took out about 3.5 percent in BCH-denominated loans, up from 1.9 percent three months earlier.
Genesis Global Trading said it has observed various changes in the composition of its clients, as well as the way in which they use the funds they borrow. Early in the third quarter, the majority of the company’s loans were used by clients to shore up their working capital, it said. But in September, hedge funds became more active on the short-side and added to their speculative long-term positions.
“Trading firms also saw increased opportunities for arbitrage and market-making as derivative liquidity increased across markets,” the company added. “These firms generally borrow digital assets to trade against derivatives like futures and swaps. We believe this kind of activity will continue to pick up as derivative markets mature.”
Cryptocurrency loans are emerging as an increasingly viable alternative to borrowing fiat. For example, data from Genesis Global Trading shows that the interest in bitcoin-denominated loans has risen largely on account of the currency’s use as an asset for non-speculative purposes.
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Images courtesy of Shutterstock and Genesis Global Trading.
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