Over recent years, it has become increasingly apparent that the crypto industry is multi-faceted. And while a number of subsectors collapsed in 2018, catalyzed by the chaotic Bitcoin price, lenders have purportedly performed better than ever before.
Crypto Opportune Borrow En-Masse As Bitcoin Stumbles
BlockFi, a lending startup backed by $52.5 million from Mike Novogratz’s Galaxy Digital, saw its revenues and customers ten-fold. Aave, the firm behind ETHLend, has announced plans to foray into the U.S., as its lending marketplace nears profitability. And Salt Lending reportedly has been essentially mandated to hire more employees, as its business swells and continues to garner traction.
Salt’s newfound penchant for hiring talent comes as Bitmain, Huobi, and other key industry participants seem to be overtly floundering, laying off employees left and right.
Michael Moro, who is the chief executive at Genesis Capital, an essential arm of the crypto conglomerate that is Digital Currency Group (DCG), chalked this subindustry’s rapid growth up to the bear market. His firm, which is aimed at institutional players, has already issued $700 million in loans since March. Genesis’ clients still have $140 million in loans outstanding, indicating that this area of the cryptosphere is far from slowing.
Many have been caught off-guard by this industry thematic development, as many would assume that the demand for borrowing via the medium of cryptocurrencies would trend with prices. Genesis addressed this paradox (of sorts) in its Q3 “Lending Snapshot” report.
The Jersey-headquartered firm explained that it launched its loan product in March to opportunistically meet demands from a swelling number of market participants, and has since seen “incredibly strong reception.” Genesis explained that this overwhelming reception has taken the form of “60+ institutional counterparties,” who have sought loans across nearly a dozen digital assets, including XRP, Litecoin, and Ethereum.
2018’s tumbling market may have only enticed the group’s clients, which primarily consist of hedge funds, trading consortiums, and crypto startups, to borrow digital assets to act as working capital, hinted the Lending Snapshot.
Genesis pointed out that hedge funds “generally have thesis-driven views on assets,” so the arrival of its platform, coupled with declining prices, likely catalyzed funds to borrow crypto assets to short-sell cryptocurrencies. On the other hand, the American startup added that trading funds, who have a comparably greater penchant for risk, have sought to borrow digital assets on short-term bases to take advantage of arbitrage opportunities, rife in emerging markets like crypto.
Last but not least, the firm drew attention to loans requested by fintech startups, which may actively use crypto assets “as a means of working capital to scale their businesses, such as remittance payments to customers.”
Regardless of how the borrowed funds are used, the bottom line is that bigwigs in this nascent sector are still poised to allocate copious amounts of free-flowing capital to cryptocurrency-related ventures.
Although the growth of this little-known business has undoubtedly been unprecedented, the firms aforementioned seem only poised to accept to on-load even more customers. Moro explained:
“We’ve certainly proven that there is market demand, that there’s product fit and that it’s time to invest even more in this side of the business.”
BlockFi has plans to diversify its products, but intends to stay constrained to a similar line of business. The firm may offer credit products in the near future, including a Bitcoin saving account that will bear interest, along with a crypto-centric loyalty card.