Traditional Lenders Extended Millions in Loans to the Crypto Space Through Genesis in Q4

Several institutions are parking their idle cash on Genesis Capital’s balance sheet, the cryptocurrency lender and trading firm announced in its fourth-quarter earnings report Tuesday.

Over the period, the total volume of Genesis’ active loans outstanding increased by 81% to $3.8 billion, while loan originations increased by 46% to $7.6 billion. The average U.S. dollar or stablecoin loan size to Genesis doubled from $2 million to $4 million in the fourth quarter, and the average loan size for first-time lenders on the Genesis platform increased from $590,000 to $3.2 million.

These results are in line with observations by economists who’ve noted that institutions are saving more and investors are searching for yield amid a low interest rate environment that will persist during the pandemic-induced recession.

“The space is just bigger,” Genesis CEO Michael Moro said. “We’ll see more and more people buying from the spot market for the first time, borrowing and lending for the first time … the hope is to continue to be able to unlock more supply, that we will be able to get more traditional lenders lending dollars into the crypto space, to hopefully keep interest rates under control.”

While bitcoin and ether continue to take up a larger share of the loan book pie, Genesis still saw increased demand for dollar loans “mostly from market neutral types of hedge funds and prop trading firms as they are able to continue to arbitrage the spot and the futures market,” Moro said. This stood in contrast to Genesis’ Q3 report which showed ETH loans rapidly increasing after the summer’s DeFi craze. 

BTC is now around 54% of the pie and ethereum 15.5%, compared to 40.8% and 12.4% respectively at the end of the third quarter. XRP has shrunk to 0.4% of the portfolio, down from 1.4% after Genesis chose to stop borrowing and lending in the cryptocurrency in the wake of the U.S. Securities and Exchange Commission’s (SEC) suit against Ripple.

In the earnings report, Genesis called on central banks to include stablecoin data in their datasets. Moro described stablecoins as derivatives on the M1 money supply (M1 includes very liquid monies such as cash, demand deposits, and traveler’s checks; M2 includes less liquid money like savings and time deposits, certificates of deposits, and money market funds).

“You have to have a U.S. bank account to access U.S. dollars,” Moro said. “The advent of stablecoins have made it so that the remote farmer in the middle of India can have USDC if they have an ethereum address. You have increased the accessibility of U.S. dollars globally which I don’t think people have thought about.”

Moro said he predicts that central banks around the world are going to be wary of their citizens having easy access to the dollar and that the U.S. Federal Reserve is going to avoid having a dollar that is too strong, which would lead to an export/import imbalance if U.S. goods become too expensive for other countries to purchase.

“I don’t think you can put the USDC genie back in the bottle,” Moro said. “Once you’ve done the USDC route it’s really hard to kind of go back. … It’s literally telling people, this fantastic thing, you can’t do it anymore, and go back to the bank wires.”

Derivatives rise in the bull market

Genesis’ derivatives trading desk also saw record volumes last quarter, with traders looking to hedge their risks as they got into the bull market. 

Derivatives trading increased by 350% to $4.5 billion in total traded volume, and spot trading increased by 80% to $8.1 billion in total traded volume. 

“People are interfacing directly with us as a liquidity provider on CME and some of the other exchange venues,” said Joshua Lim, head of derivatives at Genesis. “We’re acting as a block liquidity provider because people want larger sized orders.”