Welcome back to Bitcoin for Corporations, session three. I'm here with Michael Moro, the CEO of Genesis. This is going to be the Michael squared session. This is going to be great. Two Michaels at the same time for the price of one. So, Michael, introduce yourself to the audience and tell us about Genesis.
Happy to do it, and thank you for inviting myself and Genesis back for this. It's a fantastic event. So, Michael Moro, CEO of Genesis. We are an institutional-only crypto firm providing prime services to hedge funds, family offices, corporations. And we have been in business now since 2013. So, we are now entering year nine in the crypto space, which is a very, very long time.
That is several lifetimes in sort of non-crypto terms, for sure. But we're headquartered in New York, but now we have offices in London. We have offices now in Singapore, and we'll also be adding office locations in several other places kind of throughout 2022. As far as kind of our size, we were at 30 people entering the pandemic. We are now at almost 200. So, we've done call it 6x, 7x in our growth in the last couple of years. And primarily we provide over-the-counter trading, derivatives, so options and futures. We have a borrowing and lending business, sort of a finance business that is the largest in the world in the crypto space. And we also have a custody business. And we really sort of aim to be the regulated, professional, institution-only one-stop shop for clients looking to engage with Bitcoin and other digital currencies.
Okay. So, can you describe a little bit about the nature of the products, the services you offer? I mean, these various trading services to corporations. Tell me what I can do if I post a hundred million dollars to my account at Genesis.
So, let's start. Primarily, on the trading side of the house, it is folks that are looking to get price exposure to Bitcoin and dozens of other cryptocurrencies. We traded on the spot side of the house over a hundred billion dollars with our clients throughout 2021, and about half was Bitcoin. So, even though there's obviously hundreds and hundreds of cryptocurrencies, and we certainly support the trading of dozens of them, over half was still kind of concentrated in Bitcoin. In addition, we did over 50 billion in derivatives throughout '21, and about 60% was also still Bitcoin.
Describe those derivatives for me so I understand what type of derivatives are they and where are they traded?
For the most part, it is sort of plain vanilla puts and calls. We've started to transact in sort of some of the listed derivatives, so sort of CME products on the futures and options side of the house. And throughout 2021, we'll be getting involved in more sort of bespoke products as well and structured products. That's sort of on the roadmap certainly for 2022. But for clients that are looking to get exposure to Bitcoin, that's one. Number two, once you've purchased Bitcoin, what can you do with it? And kind of the ability to earn yields on Bitcoin has been sort of a growing narrative over the last few years. And we at Genesis, we launched kind of the first lending business back in 2018, sort of early 2018, for the ability to take Bitcoin, post that as good collateral, and to be able to borrow, say, US dollars against your Bitcoin holdings. Really creating a way for you to get liquidity without selling and triggering tax consequences and things of that sort at various kind of loan-to-values and interest rates, as well as custody the assets for you. So, ultimately, if you post $100 million to Genesis, you could go out and obviously buy $100 million worth of Bitcoin. You could also take some of that, take $100 million, get a loan against that as well, and do a levered position on your Bitcoin. You could take $100 million and lend half of it to Genesis and earn yield in terms of kind of the US dollar play, as kind of like three different examples of what folks can do, kind of marrying kind of our liquidity on spot, derivatives, borrowing and lending, as well as on the custody side.
So, those futures, what's the duration of those futures? Are they 12 weeks, 6 weeks, 4 weeks? Do you have like things that go out a year or two or more?
So, on the options side of the house, on the listed side of the house, a lot of the durations obviously kind of match what we're seeing on the CME markets, for instance. And so, you'll kind of see the March, the June, the September, sort of the quarterlies that you'll sort of see as kind of big ones with kind of the monthlies kind of in between. A lot on the options side, many of them are short-dated. Although there are lots of people that are obviously looking to play, you know, to do kind of longer-durated options. And then say, you know, like 100k strike price and give me that in 24 months, right? To kind of tie that Bitcoin to the moon narrative. But for the most part, for corporations and kind of the way they're thinking about it, tends to be more short-dated. That's where the liquidity is.
So, I could use those derivatives either to collar my position, or I guess I could use it to sell volatility and generate yield. Is there one or the other that people prefer? Are they using it to decrease volatility, or are they actually selling volatility to generate yield?
Most of the time, you'll see guys with sort of an underlying Bitcoin holding position, and then they're selling premiums and kind of calls against it, call overwriting strategies, to generate kind of enhanced yield. And if it gets called away, great, they'll just buy some more Bitcoin kind of on top of it to replenish the holdings. And so, it's a way for lots of institutions to generate that extra yield.
What kind of yields have people generated over the past year or two?
So, we've seen on the yield side on top of premiums, we've seen kind of in the 30 to 40% annualized area. And then, if you look at kind of the basis market, kind of the cash and carry market, arbitraging spot and the futures market, while it's muted today, kind of in that price environment, it'll come around 5 or 6% annualized out to a June. We've seen that rate kind of get into the 30s and north of it kind of in a bull environment. And so, there's lots of sort of market-neutral plays to be had without kind of taking that directional bet on the price of Bitcoin.
Yeah, that's got to be pretty enticing to a hedge fund or a trader.
So, can you describe your customer base, especially your corporate clients? Like, what kind of firms do business with Genesis?
So, we obviously started, as I mentioned, back in 2013, and our first clientele was kind of the Silicon Valley VCs, right? Kind of the high net worth individuals that had kind of Bitcoin as a technology play. Over the years, we've seen kind of that rotation out of like the VCs and into more kind of the crypto-native hedge funds to now traditional hedge funds, and then really kind of in the last 12 to 18 months kind of the emergence of corporates. And what we've kind of seen, I think, is certainly kind of the... you know, we hear MicroStrategy and certainly your name, Michael, kind of come up in many of the conversations that we have with the corporations is that kind of say, 'Hey, inflation hedge. Yes, inflation in the US is 7%, but the inflation in my home country, if you're in Latin America, is kind of in the double digits, well into the double digits,' and say, 'Hey, this is my alternative. This is my escape from kind of the traditional system and a way for me to really kind of protect value outside of the traditional system.' Now, we've seen, as I mentioned, Latin America, we've seen clients in Southeast Asia really kind of actively start to kind of take place and use Bitcoin onto their balance sheets. And that's kind of the fun part for me. It isn't just a US-centric movement. It is kind of capturing kind of the attention of CFOs and treasurers and CEOs and boards around the world, which certainly corporations were not a client category two years ago, but they certainly are a point of focus for Genesis today.
So, what jurisdictions do you do business in?
So, we are, as mentioned, we're headquartered in New York, although we have clients in dozens of countries around the world. And so our custody business is registered with the FCA in the UK. We're currently working with the Monetary Authority of Singapore to get our proper license at the digital payment services act in Singapore. And then, so but we have, you know, clients really dedicated all over the world.
Okay. So, if a corporation wants to do business with you, what's the journey?
So, ultimately, and you would certainly kind of know this firsthand, Michael. The sell cycle to a corporate is very, very different than sort of a sell cycle to a hedge fund. And, you know, for a long...
Sure. So, obviously the simple case is a hedge fund is two guys in a garage that already have kind of been bit by the Bitcoin bug and are interested in kind of getting involved. Corporations have departments. Corporations have compliance and legal and finance and accounting. And ultimately while the focus is really on the trade, 'Oh my gosh, you bought Bitcoin. What price did you buy it and how much did you buy it at?' That really is like step Z, right? Kind of in the A through Z process of kind of getting started. And so, the first conversation is really kind of start with legal and compliance and getting those department heads ultimately comfortable. Then there comes kind of finance and accounting teams. We've touched on kind of the accounting difficulties certainly with Bitcoin on corporate balance sheets before. And really like the investment part of it is really kind of the last step. How do we custody this? How do we do this? It's all operations and processes and procedures. And if you're a public company, how do we disclose this? All of these things tend to happen. And frankly like some of these sell cycles are 6 to 12 months, right? And a lot of these hedge funds, they're much more shorter time frame than that. They're able to kind of react quicker to it. And so, but it's also different I think for corporates that are looking to allocate Bitcoin for the first time.
All right. I mean, I hear rumors that there just... there's been like an avalanche of hedge funds coming into the space over the past 12 months. Can you give me a snapshot from your point of view of institutional interest a year ago versus institutional interest today and how the business looks?
It's really incomparable. So I mentioned that we did over a hundred billion dollars of spot volume in 2021. That is over a 300% increase year over year. The derivatives business, which we did 50 billion of, that's an 8x increase over 2021. And since we only really have institutional clients, our volume numbers are really kind of that barometer in terms of growth and scale certainly on a year-over-year basis. Our loan business is now at 12 and a half billion dollars in loans outstanding as of 12/31, and that is basically a 2x increase kind of year-over-year on that front.
So that's people pledging crypto assets to borrow dollars mostly?
Absolutely. So there's many different use cases with that being one of them. I looked up these numbers this morning. So we've currently borrowed about 110,000 Bitcoins from the marketplace. And we also have an additional about 40,000 Bitcoin that we've taken in as collateral against the loans that they've taken out for something else, call it like dollars. So call it 150,000 Bitcoins is in the Genesis system today along with a bunch of other cryptocurrencies. And so, and I think it's also important to note that now we're getting to like big boy multi-billion dollar territory where financing against Bitcoin, borrowing against Bitcoin, borrowing Bitcoin is no longer so this new up-and-coming maybe this works kind of a venture. It is very, very liquid. We originated 50 billion dollars of loans in Q4. And so for corporations that are trying to figure out, okay, I bought this Bitcoin, what do I do with it? Or what are my liquidity options available to me? The institutional market around financing and all of kind of, you know, asset-based finance for Bitcoin is here. And certainly the system and the pipes are liquid enough to be able to support lots and lots of corporations getting involved.
Yeah, so you have a big asset on your balance sheet. Either you're going to be able to generate yield on it or you're going to be able to draw a credit line against it or both.
