Rise in institutional demand for crypto lending

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Genesis Capital’s third quarter report on digital asset lending indicates that as institutional investors venture increasingly further into the cryptocurrency ecosystem, they are contributing to a significant bump in demand for cryptocurrency lending services.

Genesis launched one of the first cryptocurrency lending businesses focused on instituions. Since the service launched seven months ago, the firm says that it has originated more than $550 million in loans, $130 million of which are currently outstanding.

Unlike other cryptocurrency loan providers, Genesis Capital exclusively serves institutions such as hedge fund and professional trading firms that use cryptocurrency as working capital for their ordinary business operations.

The report also suggests that something interesting happened in the third quarter of this year. It says in the report that in July its loans were in ETH due t several hedge funds shorting the ETH price. However, by the end of September this scenario had changed and ETH accounted for only 3.7 percent of all loans, placing it behind not only Bitcoin but also XRP (17.8 percent), Ethereum classic (4.2 percent), and Litecoin (3.9 percent).

Genesis also says that Bitcoins’ share peaked in August at more than two-thirds of all Genesis loans and stood at 62.6 percent at the end of the quarter. Bitcoin’s share also showed less fluctuation than some of the other assets and Genesis attributes this to fact that it is “the most widely used asset for non-speculative reasons, like working capital in remittance and arbitrage trading across exchanges.”

Genesis Global Trading CEO, Michael Moro also revealed said that the firm’s lending services are often used by Bitcoin ATM operators who need access to a steady supply of cryptocurrency, but also need to minimise their exposure to price volatility. He said, “They need to have bitcoin in a hot wallet, but they don’t want the price risk associated with holding it so when a customer buys at an ATM they will immediately re-buy it from Genesis.”

He also commented on other activity, noting, “that hedge funds 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.”

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