Genesis Capital releases Q3 Insights report
A day after Bloomberg proclaimed the $5 billion crypto lending market was in a "bubble", Genesis Capital released a third-quarter "Insights" report showing record growth in originations. Although Q3 was the strongest on record for the 18 month old lender, it did experience three consecutive down months in new originations. Total loan originations in Q3 increased 16% to $870 million, breaking the previous record of $746 million in Q2. Active loans outstanding remained flat at $450 million. Zooming out you can see the business has been growing at an impressive rate.
Genesis also shared a breakdown of its lending book by asset, which provides insights into current trends in the lending market.
At the start of this year, Genesis rolled out a new cash lending business, which accepted crypto as collateral. Over the past three quarters, these cash loans have grown to a third of their overall book. Matthew Ballensweig, the company's head of business development pointed to three reasons for the growth in cash lending:
- General positive market sentiment, and greater demand for leveraged longs (i.e borrowing cash to double down on long exposure).
- Bitcoin forward curves have been in contango (futures trading higher than spot prices) for most of the year, which has led firms to borrow cash to buy BTC spot and sell BTC futures. For much of the year, the implied return on that trade has been higher than the annualized borrow rate on cash. This is a familiar "carry trade" to professional traders used to exploiting market inefficiencies at relatively low risk.
- Greater sophistication amongst clients (miners + financial institutions) in hedging their long positions.
The lending book composition today contrasts sharply with the summer of 2018 when funds were piling into short positions on Ethereum (some very publicly), and borrowing demand for ETH was skyrocketing.
Why it matters
- Fixed income markets in the traditional world are multiples larger than underlying spot markets. If history is any guide, lending markets in crypto will continue to grow rapidly, but it is hardly indicative of a "bubble" when most crypto lending is fully collateralized by the underlying assets.
- Looking at trends in the loan markets provide insight into investor sentiment as we've seen with leveraged traders capitalizing on "momentum trades." Today, professional traders working with Genesis appear to be increasing their net long exposure.