Crypto Loans Still Booming, Bitcoin Losing Its Share

By Sead Fadilpašić

Source: Adobe/Andrey

Digital currency prime brokerage Genesis said its new loan originations increased almost 700% year-over-year to an all-time high of USD 25bn in this year's second quarter and were also 60% higher than in the first quarter this year. Also, bitcoin (BTC) is losing its share in their portfolio.

"This marked our thirteenth consecutive quarter of strong lending growth," the firm said, adding that this also brings the cumulative originated value to USD 66bn since the launch of the Genesis lending business in March 2018.

The Q2 2021 Market Observations Report stated that, despite a 41% decline in the BTC price over Q2, the company's total Active Loans Outstanding decreased by only 8% to USD 8.30bn.

Per the loan portfolio composition, BTC accounted for 42% at the end of the second quarter, compared with 54% at the end of 2020.

Q2 2021 loan portfolio composition

* - and equivalents. Source: Genesis

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"Since our weighted average cost of capital (WACC) on crypto assets was significantly lower than our cost in USD, Genesis had more room to lend crypto at lower rates, even when spreads were much tighter," the firm said.

Other highlights include:

• Genesis traded USD 29.2bn in spot in Q2;
• the trading desk increased electronic execution from 32.5% of all trading activity to over 42%; despite an overall market trading volume contraction of 33% and a market capitalization fall of 20%, the trading desk generated volume just 7% lower than Q1;
• custody increased the number of onboarded entities by 22% quarter-over-quarter with 63% of Custody customers also having a trading and/or lending account with the company.

Additionally, bitcoin trading accounted for some 47% of the firm’s overall spot trading activity, down from roughly 80% in Q2 2020. Ethereum (ETH) took most of that share, accounting for some 25% of overall volumes on the desk.

There's also a noticeable continued demand for altcoins, the report said.

According to Matt Ballensweig, Head of Institutional Lending at Genesis, trends in Genesis's activity and the broader market "confirm the changing role of bitcoin as the industry's gateway asset, and highlight the emerging protagonism of Ethereum and decentralized finance" (DeFi).

Bitcoin's market dominance declined from over 70% at the end of 2020 to under 45% at the end of Q2, he said, while ETH and "most of the main" DeFi tokens more than doubled in price since the beginning of 2021.
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