Genesis Records 13 Consecutive Quarter of Growth, Reports Rotation Out of BTC into ETH While DeFi Attracts Funds

New loan originations at Genesis increased over 60% to hit an ATH of $25 billion in Q2, and while utilization of BTC loans sees compression, “the market is currently flush with investors looking for yield.”

Crypto lender Genesis released its Q2 2021 report showing an increase of 22% in the number of entities onboarded to Genesis Custody.

New loan originations at Genesis meanwhile increased over 60% to hit an all-time high of $25 billion, marking the thirteenth consecutive quarter of growth. Originations rose almost 8x year-over-year and were 60.6% higher than at the end of Q1.

Even a 41% decline in BTC price over Q2 only resulted in its total Active Loans Outstanding decreasing by 8.1%.

“Mark-to-market depreciation in book value was offset by organic loan portfolio growth,” noted the report.

The utilization of BTC loans has actually been seeing compression due to the flood of new supply on the market and the institutional market unable to absorb the inventory. Genesis expects this trend to continue “as more yield platforms come together” and persist until a new wave of institutional borrowers enter the market.

While cash lending yields and volumes were the main stories of Q1, since then, a meaningful reduction in new cash borrowing demand has been seen in the institutional market, given the collapse in spot/futures spreads.

But at the same time, the market is currently flush with investors looking for yield, and this supply-demand imbalance is pushing cash rates much lower than over previous quarters.

Changing Roles in the Market

As BTC's dominance in market cap declined from over 70% from late 2020 to under 45% at the end of Q2 2021, at Genesis, in their loan books, Bitcoin dropped from 54% to 42% during the same period with Ether and smaller assets picking up their difference.

“Activity in the broader market and at Genesis confirms the changing role of bitcoin (BTC) as the industry’s gateway asset and highlights the emerging protagonism of Ethereum and decentralized finance (DeFi),” it states.

The firm also reported increased trading of DeFi tokens, including UNI, SUSHI, and AAVE, and increased trading of Ethereum competitors, including SOL and BNB.

Similarly, despite an overall market trading volume contraction of 33% and an overall market cap reduction of 20%, Genesis’ trading desk completed $29.20 billion in trades, representing a 7% decline from Q1 but a year-over-year increase of 487%.

Interestingly, BTC trading accounted for only 47% of spot trading activity on Genesis, down from about 80% in Q2 2020. And ETH took most of this share, accounting for roughly 25% of overall volumes on the spot desk.

While top crypto assets, BTC and ETH, dominated total notional traded, there was continued demand to trade altcoins with large-cap DeFi products at the forefront of this transition, with the dollar value of tokens locked in decentralized applications more than doubling since Q1.

Genesis reported growing interest from institutions such as Millennium Management, Point72 Asset Management, and Matrix Capital Management as one of the notable drivers of DeFi volumes.

Now, in Q3, while the outlook for crypto prices is uncertain in the face of volatile narratives, confusing macro indicators, and increasing regulatory attention, the technological improvements — Taproot on Bitcoin, London upgrade on Ethereum, and significant progress in Layer-2 protocols — will meaningfully impact the usability, throughput, and valuations of several main crypto applications.

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