Genesis Trading, which offers two-sided liquidity for digital currencies, has today launched a new affiliate, Genesis Global Capital, an institutional digital currency lending business.
Genesis Capital will allow institutional investors the opportunity to borrow bitcoin, ether and other digital currencies in large quantities over fixed-terms.
“Having been incubated by our affiliated company, Genesis Trading, we feel we’re in a great position to truly understand the pulse of the market and identify evolving industry needs quicker than most. We believe now is a great time to offer an institutional-focused lending service because it will increase general liquidity in the marketplace, encourage new financial institutions to participate in a two-sided market and increase the working capital that companies use to scale their digital currency-centric businesses,” says Genesis Capital in a release issued today.
The firm will offer borrowing on bitcoin, ether, ether classic, litecoin, ripple, bitcoin cash, zcash and other digital currencies in sizes from $100,000 upwards over fixed terms. These fixed terms mean that users of the service can a loan from two weeks to six months, depending on their business need.
“We believe that giving institutions the ability to both borrow and trade will expand their portfolio management and trading weaponry and encourage additional funds to enter the space, As a first mover in this area, we think that a high-touch model is the right approach in the near-term. Think traditional stock loan desk. Onboard, post collateral, borrow, and then put that capital to work as you choose to. Create the term and structure that makes sense for your trading needs and face a regulated and reputable counterparty,” says Genesis Capital.
The firm claims that it has identified a number of different possible use cases for borrowing digital currencies, and claims that these use cases will increase as the crypto-ecosystem continues to develop and mature.
One such use case would be to enable active hedge fund and institutional investors to either hedge portfolio risk or take a speculative short position.
“We think that shorting the spot market will become even more useful to active managers once gaining broad exposure through ETFs becomes commonplace. Managers looking to take long positions on the market holistically, but are particularly bearish on a specific asset, can short to hedge out the individual risk of that constituent,” says Genesis Capital in the release.
In addition, the firm claims that hedge funds and market-makers – in both the spot and derivatives markets – can benefit from borrowing digital currencies.
This is because firms trading bitcoin derivatives could find it advantageous to have bitcoin on hand to borrow because they can short-sell those borrowed bitcoin to delta-hedge their long derivative positions, while spot trading firms can utilise this borrowing as a way to leverage their existing trading strategies without taking on additional risk.
“In order to maintain a long-term neutral position while simultaneously taking advantage of various arbitrage opportunities, traders should consider the benefits of borrowing digital currency,” says Genesis Capital.
In addition to these portfolio management use cases, Genesis Capital claims that, as businesses increasingly build products and services around bitcoin, they may need to finance their daily operation by borrowing bitcoin or other currencies.
“An example of this today would be remittance companies that need to make immediate settlements to their customers, but don’t want to buy a large balance of bitcoin and hold that risk on their books. We expect many different types of these use cases to emerge in addition to the obvious ones that exist today and plan to evolve our offerings along with the market,” says the firm in the release.