Institutional-focused cryptocurrency OTC trading and lending firm Genesis Global Trading paused its credit expansion plans after witnessing the largest asset "deleveraging" event in market history. What triggered this decision?
Market Reversal in March
Genesis CEO Michael Moro recently explained the company's rationale during an interview. Earlier this year, Bitcoin futures traded at a slight premium to spot prices, allowing Genesis clients to borrow USD, buy crypto spot, and sell futures for arbitrage. However, last month's extreme volatility erased these opportunities, creating unprecedented instability in crypto credit markets.
"The market completely reversed after March 12–13," Moro stated. As Bitcoin prices plummeted, clients repaid USD loans to reclaim collateralized BTC while futures traded at record discounts to spot prices. Traders adopted a new strategy:
"Short spot markets while buying futures contracts, then profit from convergence at expiration."
Moro described this as Genesis' most extreme deleveraging event ever—with record USD repayments and Bitcoin withdrawals. The company suspended new credit originations immediately.
"With equities crashing, oil markets collapsing, and credit markets in disarray—how could we safely extend credit?" Genesis representatives questioned.
Conservative Risk Management Approach
After careful evaluation, Genesis opted to temporarily halt credit services until market conditions stabilize. While competitors continued lending at lower collateral ratios, Moro prioritized risk avoidance over short-term gains:
"We'd typically compete aggressively, but after two weeks of turmoil, we let others take those risks—the exposure simply didn't meet our standards."
Key Takeaways from the Crypto Credit Crunch
- Institutional lenders face heightened counterparty risks during extreme volatility
- Arbitrage opportunities can evaporate rapidly during market reversals
- Conservative capital preservation often outweighs short-term profitability
FAQ: Understanding Crypto Credit Markets
Q: What causes deleveraging in crypto markets?
A: When asset prices drop sharply, borrowers repay loans to reclaim collateral, reducing market leverage.
Q: How do institutional lenders mitigate risk?
A: Through dynamic collateral requirements, selective counterparty approval, and pausing services during extreme volatility.
Q: Why does futures-spot divergence matter?
A: It signals shifting market sentiment and alters arbitrage strategies that influence credit demand.
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