On April 28, Genesis Global Trading, Inc., a subsidiary of Digital Currency Group, released its digital assets report for the first quarter of 2021. Genesis offers institutional clients spot and derivatives trading, lending, custody, and treasury and prime brokerage service products Hence, the report was full of interesting insights showing the explosive growth in the Bitcoin credit market that has been happening so far this year.
Bitcoin lending growth
According to the report, Genesis saw:
- $ 60 billion in digital asset deals, loans, and transactions in the first quarter
- Over $ 20 billion in new loans, up $ 12.4 billion from Q4 2020.
- Active loans outstanding rose to $ 9 billion, up 136.4% from $ 3.8 billion in the fourth quarter of 2020.
At the end of the quarter, BTC accounted for 42.8% of Genesis’s loan portfolio, down 53.9% from the previous quarter. One of the reasons for the decline in loans granted in Bitcoin was the GBTC discount on net asset value (NAV), first developed in January.
Since the GBTC premium is negative, the demand for BTC loans to conduct arbitrage trades for a “risk-free” return drops significantly.
During the first quarter, the spread between Bitcoin futures and spot prices continued to widen as leverage demand increased across the Bitcoin market. The growing base and increasingly liquid market for Bitcoin futures and derivatives continues to drive more institutional capital into the market.
“This sustained base premium has led many more institutions to consider opportunities for crypto returns, which is fueling the continued growth of our cash portfolio. As the June base continued to widen through the end of the quarter, our derivatives desk saw increasing demand from macro discretionary firms and arb shops to conduct base / cash and carry trading through our desk.
Some important advantages of trading the base in a bilateral OTC format are the physical settlement of the futures contract and the collateralisation of the futures contract with the underlying crypto-asset. In many ways, base persistence is a cash deficit problem within the crypto market structure. “–Genesis'” Q1 Market Observations “
Genesis also reported on Spot Digital Assets trading volume, which grew explosively in the first quarter, trading $ 31.5 billion in Spot. That’s a 287% increase over Q4 2020, aided by the introduction of Genesis Treasury. Companies grew from 0.49% of total volume last quarter to 27.06% of total OTC volume.
According to the report, Genesis saw:
- 133% Q4 growth via OTC and negotiated derivative blocks to reach $ 10.5 billion trading volume.
- Counterparty base growth of 21% over the quarter.
According to the report, most of this river came from:
- “HNW individuals and systematic return funds are taking advantage of the higher implied volumes and spot rally to cut length by overwriting calls.
- Recycling risk in medium to long term calls between oversubscribers and counterparties looking to increase length in a debt-ridden but limited loss format. (The relative implicit financing costs of perpetual swaps versus longer-term futures sometimes made buying longer-term calls a more attractive option.)
- Company accounts and risk books use puts to hedge their business risk or illiquid portfolio risk.
- Selective hedging of volatile losses through short-term gamma portfolios “
The numbers and growth reported by Genesis are extremely bullish and show the continued maturation of the Bitcoin lending, futures and derivatives markets as sophisticated institutional capital allocators are incentivized due to the different returns offered compared to the Bitcoin futures get market entry / derivatives markets.
At the time of reporting, the total open interest in the Bitcoin futures markets was $ 18.9 billion, up from $ 2.9 billion the previous year. The demand for long-term leverage on BTC is a major reason returns are so high in the Bitcoin ecosystem, which in turn leads to additional capital inflows and interest in the Bitcoin markets.
Expect Genesis to continue growing exponentially over the coming quarters, with large players from the legacy system making an effort to showcase and get involved.