Genesis Global Capital reports increasing interest on the part of institutional investors to lend and borrow cryptocurrencies.
A sum upward of $300 million was lent to investors- this took the form of both a tool to hedge, as well as leverage to safeguard and enhance bets against digital currencies.
In the beginning, a majority of the loans were driven primarily by working capital. However, in September, the investment pattern changed and became more active on the short side, while simultaneously adding to their speculative long term positions.
Michael Moro, CEO of Genesis Global Trading, said that an ordinary working capital requirement is bitcoin BTCUSD-0.11% ATMs. “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 said. A hot wallet is one that is linked to the internet and is thus available to pay out and receive cryptocurrency, which is distinct from them being in cold storage.
With punters seeking to double down on their crypto wagers, the popularity of borrowing cryptocurrency has increased exponentially. However, much to the surprise of the company, crypto bears have avoided Ether, which has recorded what is amongst the worst performances of any major digital currencies this year. What is particularly worrisome is that most of the sellers are not short sellers, but long term holders divesting their holdings.
Bitcoin accounts for 50% of the company’s lending portfolio and based on counterparty and credit risk, the cost of borrowing bitcoin is estimated at 12 percent this year. It is to be noted, however, that while lenders are fine with handing over their crypto for a year or so, borrowers function within a far more limited timeframe. “Folks looking to short bitcoin usually have a price target and will often only hold the position for four or five days,” said Moro.
The report has been issued shortly after Fidelity Investments announced the launch of a cryptocurrency business to service institutional and sophisticated investors, highlighting a growing interest across the spectrum of investment—confirming a trend that’s been visible for a while, according to Moro.
“In the fund space it’s not just crypto specific funds, we are seeing a lot more traditional financial firms borrowing bitcoin too.”