Genesis Capital, an institutional digital asset lending platform, has published a report on Q1 performance. Genesis Capital is part of a group of companies that include Genesis Trading and Grayscale Investments.
According to the report, Genesis Capital had a big month doubling originations to $2 billion – the platform’s best quarter ever. This amount was up 354% versus the same quarter year prior.
Cumulative originations increased by 46.6% from the prior quarter, marking an eighth consecutive quarter of growth bringing total originations to nearly $6.2 billion since the company launched the lending business in March 2018.
The information is edifying but perhaps more interesting was Genesis’ perspective on what happened in crypto markets on March 12 when the price of crypto, Bitcoin specifically, tanked.
The “Great Deleveraging” was predicated by a rapid rise in Bitcoin when it topped $10,000 in February.
On March 12th, Bitcoin traded around $8,000. To quote the report:
“On March 12, BTC began the day trading at about $8k. Over the course of the week, global financial markets saw unprecedented levels of selling with a massive flight to dollars … As BTC started tanking, the Great Deleveraging introduced in the March 3rd section began coming to fruition. BTC fell below $7k, then $6k, and then by the evening in New York, $5k, and soon $4k. A 50% crash in mere hours is significant, even for BTC.”
Genesis said they are confident in their ability to weather future periods of extreme market turbulence and their client base is “well insulated” from consumer credit.
Crowdfund Insider reached out to Matt Ballensweig, Vice President at Genesis, for some additional insight. We asked Ballensweig the volume of margin calls during the Great Deleveraging.
Ballensweig said their ability to responsibly manage risk and face zero defaults through one of the most volatile days in Bitcoin’s history highlights the strength of their risk management system.
“We believe our framework sets us up for continued success and gives us the flexibility to make smart decisions even in a turbulent market.”
He noted that Genesis faced zero capital losses, zero defaults, and zero delinquencies during the Great Deleveraging.
“We successfully processed 100+ margin calls over the month of March, which represented hundreds of millions in notional volume amongst roughly fifty counterparties.”
We asked what Genesis is doing going forward to better manage rapid price changes in an already volatile market.
Ballensweig said they manage risk specific to each of their relationships and then again at the portfolio level:
“We have many levers to pull to ensure Genesis is well protected, including automated collateral management, calculated exposure limits per counterparty, proactive margin management, ongoing transparency and health updates, and macro hedging tools. Our risk system works around the clock to monitor our exposure and the health of our portfolio. Our ability to responsibly manage risk and face zero defaults through one of the most volatile days in bitcoin’s history highlights the strength of our methodology,” Ballensweig said.
So who was the big winner during this event?
There were a handful of winners (and losers) during this period of time, but three types of organizations come to mind, Ballensweig explained:
“OTC lending and trading firms – So long as credit exposure, and collateral were properly managed, lending and trading firms were able to capture spread on significant volumes traded during this period of time. Quantitative trading firms – Quant trading firms stand to make a lot of money during periods of heightened volatility,” Ballensweig said. “As global and crypto markets whipsaw around, market-neutral algorithms can take advantage of more opportunities in a shorter period of time than in less volatile periods. Good trading firms can cycle through lucrative trades quickly given the velocity of the assets they’re trading.”
Ballensweig also pointed out that exchanges, similar to OTC lending and trading firms, saw a ton of activity during the March 12 drawdown. Exchanges charge trading fees based on the volume traded, so greater activity equals greater revenue – so good for them.
We asked if Genesis is doing anything to improve their tech stack. Ballensweig said that Genesis saw a ton of volume during the first quarter and traded over $1 billion in the month of March during the deleveraging period.
“We’re rolling out a handful of new trading features in 2020 which we’re excited to share in the coming months.”