This column was co-written by Frank Chaparro, Special Projects Director at The Block, and Laura Vidiella of MNNC Group. The views expressed in this column are their own and do not necessarily reflect those of their employers.
One of the cornerstones of our careers over the years has been trading market rumors and insights with each other and other market participants. So the Genesis collapse was a disaster for a number of reasons, but one unfortunate side effect was the loss of a goldmine of quarterly reports for derivatives, credit and OTC trading.
For those unfamiliar, the Genesis Report was like an earnings call on steroids, providing in-depth analysis of major trades, derivatives volumes, spot trading, etc. Now, without quarterly signals, the crypto credit markets feel a bit more murky. There is no single giant delivering trends on a silver platter.
Now it’s time to roll up our sleeves and read the crypto credit market. Luckily, Frank spent a week at the Wyoming Blockchain Symposium in Jackson Hole, sponsored by SALT. After speaking with executives from Kraken, Galaxy, and other major companies, we gained insight into the current state of crypto credit. Simply put, the days of unsecured lending in institutional crypto exchanges are long gone, and companies are still cautiously and cautiously expanding their presence in the credit space. There’s no indication that any company lending to institutional clients will be shouting eye-popping quarterly growth from the rooftops any time soon. This is definitely not Genesis in 2022.
“There was a hole in the market,” Galaxy’s Steve Kurz said in an interview with Frank in Jackson Hole. “We were always more conservative and not willing to take the same risks as other people.”
In fact, Genesis left a huge gap in the credit markets after failing with a loan book that was nearly $20 billion bloated at its peak. But Galaxy’s loan book is slowly — but deliberately — expanding, growing 5% between Q1 and Q2 2024 to $699 million. Kurz noted that when you run derivatives and loans, your business starts to resemble a bank, with a higher standard of care and responsibility to manage risk carefully.
Kraken is following a similar path. In an interview with The Block, CEO Dave Ripley emphasized that while their lending business is growing steadily, “we haven’t done anything on an unsecured basis.” “Conservative” is the current buzzword in the crypto credit space.
Coincidentally, Frank’s trip to Jackson Hole and the SALT conference coincide with Federal Reserve Chairman Jerome Powell’s visit to the Cowboy State. Bitcoin Bitcoin
+5.19%
Early Friday saw a cautious, small rally as markets held their breath.
This week, the crypto world wasn’t just worried about interest rates. Fears that BTC would crash on the long-dead Mt. Gox exchange added to the anxiety, casting a shadow over otherwise quiet markets. With markets taking a risk-off stance and a sudden surge in the yen causing further chaos, Bitcoin’s path looked more uncertain than ever.
Bitcoin’s weekly performance was generally lackluster, despite its near-$60,000 all week. The specter of Mt. Gox lingered as another $700 million worth of bitcoin was moved from wallets associated with the exchange, raising alarms that bitcoin could flood the market. Meanwhile, the broader financial markets were in similar turmoil, with Wall Street indexes down on Thursday. As traders watched the Jackson Hole symposium, opinions were divided on how much the Fed would cut rates in September. Whether it would be a 25 or 50 basis point cut, and whether there would be multiple cuts or cuts, remains to be seen.
After the Jackson Hole Symposium, Bitcoin decided to put on a show and briefly broke $62,000 after Jerome Powell’s dovish hints. Future interest rate cuts. But as quickly as the surge, the excitement died down and Bitcoin fell back to $60,800. Analysts are now in a “wait and see” mode, hoping Bitcoin will hold steady above $61,000. The market is keeping a cool head, watching closely for signs that this roller coaster is gearing up for another round, especially as school starts and everyone heads back to their desks after Labor Day weekend.
With funding rates at their lowest since March 2023 and open interest rising, short positions are likely to increase, creating a potential short squeeze.
Disclaimer: The Block is an independent media outlet providing news, research and data. As of November 2023, Foresight Ventures is the largest investor in The Block. Foresight Ventures invests in other companies in the cryptocurrency space. Cryptocurrency exchange Bitget is an anchor LP of Foresight Ventures. The Block continues to operate independently to provide objective, influential and timely information on the cryptocurrency industry. Below are the current financial disclosures.
© 2024 The Block. All rights reserved. This article is provided for informational purposes only. It is not provided or intended to be legal, tax, investment, financial or other advice.