Genesis Capital released its fourth-quarter Insights report, which demonstrates sustained growth in its lending business originating $1.1 billion, an increase from their prior all-time high of $868 million in Q3. Active loans also increased to over half a billion, up 21% despite the declining bitcoin price.
Continuing the trend over the last year, cash (and equivalents such as stablecoins) have become an increasingly large portion of their loan book. As noted in the third-quarter report, this is a result of traders wanting leverage as well as the arbitrage opportunity in the futures market where traders can borrow cash to purchase spot and sell futures pocketing a risk-free profit.
These above-average forward curve premiums will likely continue in the near future, however over time, it will slowly normalize as a result of increased cash supply. Institutional asset-backed lenders could start to slowly enter the market as they become more comfortable with handling bitcoin since the returns are much greater than they receive on traditional structures. A prominent driver of demand for cash is expected to come from miners as they look to upgrade their equipment to improve efficiency going into the halving. They can leverage their existing balance sheet to source cash to purchase new best-in-class equipment.
Why it matters
The increased demand to borrow, lend, and collateralize crypto bodes well for Genesis and other institutional lenders in the space. As these companies continue to grow they will be able to expand their capabilities to better serve the needs of their clients.
As with any lending market, as more debt enters the system there is increased risk to the market. The growth of derivatives also plays a role since many of these firms are borrowing funds to execute their trades which adds another layer of risk.