![Genesis Capital CEO: Institutional Lending, Crypto Credit Markets, and Why No One's Shorting Bitcoin [INTERVIEW]](/upload/cover/202511/20251108075426_a301089e.jpg)
Genesis Capital, the institutional lending division of unlisted cryptocurrency firm Genesis Trading, emerged as one of the most significant beneficiaries of the 2018 bear market, building a multi-billion-dollar operation following Bitcoin's 70 percent decline.
CryptoSlate interviewed the CEO of both Genesis Capital and Genesis Trading, Michael Moro, to explore why and how the largest stakeholders in cryptocurrency are buying and participating in a rapidly institutionalizing market.
A lending division was a strategic move for Digital Currency Group-owned Genesis Trading, which established its New York presence in 2013 as one of the industry's first over-the-counter (OTC) market makers handling large-block trades for high-net-worth individuals and institutions.
However, it wasn't until 2018, according to Moro, that the cryptocurrency market saw the arrival of "substantial" participants wanting to actively trade, which meant wanting to take positions on both sides of the market.
"Because of 2017 and the crazy bull run, we had a lot more substantial investors. The traditional buy and hold guys, they were always there. What we didn't have was the more substantial institutional hedge funds that first got their feet wet in 2017, and could take advantage of a lending market in 2018."
The timing of Genesis Capital's March 2018 launch—as Bitcoin entered what would become a steep year-long downtrend—catapulted the division to success, according to Moro, who added "there's no question" that his company's boom in trading was driven by institutions adopting strategies to go short and capitalize on Bitcoin's decline.
Eighteen months later, the division would become the largest known lender in cryptocurrency—having originated more than $3 billion in crypto and cash loans, said Moro, with an additional half-billion dollars currently outstanding.
Hedge funds shorting Bitcoin may have built Genesis Capital's reputation, but the landscape has evolved as the market has matured.
Today, there are market-neutral funds borrowing to balance their exposure between long and short positions. But apparently, shorting the spot price of BTC is no longer part of this strategy. Moro explained:
"The guys that were shorting Bitcoin in 2018—no one's shorting Bitcoin today. Bitcoin's almost become the base pair, and it does what it does. People aren't shorting the spot. Instead, what people will do, is short the alts."
This mirrors the situation in the interbank Foreign Exchange market, where the US Dollar is used as a base currency and most action on the short side happens in the fiat 'alts,' the Euro, the British Pound, and so forth. It seems Bitcoin has gone the same way.
Accordingly, Moro suggested altcoins are being put in their "pecking order" by institutional traders like his clients, who will short them back to their perceived fair value. They will not, however, sell Bitcoin to take their short positions (opting to use stablecoins instead.)
"Relative to how Bitcoin performs, they'll short Litecoin, or XRP, or Ethereum. If Bitcoin went up 5 percent in a day, and say Litecoin goes up 10 percent, they'll short Litecoin back down. They're essentially putting things back into the relative valuation that these investors have made up in their mind, as in 'here's how the pecking order goes.'"
The growth of Bitcoin's futures market has added another dynamic to the lending landscape.
"Arbitrage guys," said Moro, will look to capitalize on spot-futures spreads, as well as the classic spot-spot arbitrage between exchanges. In a bull market where futures contracts tend to trade at a "pretty significant premium" to spot, Genesis Capital tends to add dollars flowing as clients look to go short on the futures market.
Perhaps the most conventional clients of Genesis are businesses whose working capital is denominated in Bitcoin, who make up around 20 percent of the division's loan volume borrowing to fund business expenses and operations.
Instead of going to a traditional small-business lender, and then converting the cash to BTC, Moro explained it's more "direct" when they take out a loan in BTC with Genesis.
Early-stage startups and funds may have to look elsewhere for a loan, however. When it comes to choosing who to lend to, the division is highly selective.
Genesis lends to 70 anonymous institutional counterparties whose credit is "very, very strong," according to Moro, as loose lending policy could apparently have market-wide consequences.
Moro warned that not everyone will be as strict as his company as the lending market expands, and riskier loans will be made at higher interest rates to less creditworthy borrowers—just as banks lend to prime customers, subprime, and so on. He stated:
"My one big fear is some big credit crisis that happens in crypto. A credit crunch and the crunch cycle has happened in every credit market in the history of the world. And so it'll probably be something to the effect of, either you made a bunch of risky loans, everyone defaults at the same time and the lender's done, and they have no more Bitcoins to return to the people they borrowed it from, so those people are just out their Bitcoin—that's a scary scenario."
Moro envisioned a second, equally damaging scenario, where a sharp drop in the spot price of a cryptocurrency, possibly Bitcoin, would trigger a mass sell-off as lending firms liquidated all the loan collateral on their books.
"No one's meeting margin calls, and now you have to liquidate their collateral—that liquidation is going to hit the exchanges. And the margin calls are happening because prices are falling. So now you're sending an additional 50 or 100 million-dollar market sell order on the exchanges at the same time that the prices are falling."
Moro seemed more optimistic about the near future for the crypto market, saying as a "sign for the future of the ecosystem," "we couldn't ask for more" than Bakkt's soon-to-launch futures exchange.
Indeed, the Bakkt futures product has been widely praised as a game-changer for institutional involvement in crypto, but some of the more nuanced benefits offered by a physically-settled BTC exchange remain little-discussed.
For one, Moro explained the existing cash-settled CME Group futures exchange isn't a "true hedge" in the eyes of the U.S. Securities and Exchange Commission (SEC), who prefer actual Bitcoin to be bought and sold as a hedging instrument. Bakkt, with its physically-settled contracts, apparently will check this box.
The practice of hedging against positions is standard practice among market makers like Genesis Trading (the OTC arm of Moro's company), allowing them to buy and sell to clients and not be affected by price fluctuations. According to Moro, this should make Bakkt a boon for liquidity in the crypto market as it encourages more regulated broker-dealers to follow in Genesis' footsteps and market-make.
For Genesis Capital to maximize its efforts in the lending space, Moro said developing an in-house custody solution is much-needed.
"Clients tell us all the time, can I send you some money. We've always been transactional, spot-to-spot resolution, so we've never held a balance for people. But, now that we have the lending division, custody starts to make a ton more sense,"
In its current capacity Genesis Capital acts as a regulated broker, matching lenders and borrowers, and by policy won't hold client assets. As such every time a loan request comes through, the division has to reach out to known holders of the crypto in question, obtain assets from both counterparties, and make the trade happen.
Custody, it seems, is the company's major bottleneck.
Genesis wouldn't necessarily be building a solution from scratch and competing with custody giants BitGo, Fidelity, or Coinbase Custody, however, and is open to partnering with an existing provider.
