As the price of bitcoin cratered last year, falling 83% and erasing $250 billion in market value, one company has secretly been making a killing with some rather unusual business transactions.
Selling to a paradoxical mixture of bitcoin-believing crypto entrepreneurs and hedge funders out to profit off what they hope is the demise of cryptocurrency, bitcoin lending firm Genesis Global Capital originated $1.1 billion in cryptocurrency loans last year, according to a report released today.
Charging interest rates that ensure that its pockets get lined regardless of whether a customer loves or hates crypto, the company is leading the way as a rising tide of crypto startups compete to stay cash positive in this epic bear market.
“It should be possible for people to go long and short bitcoin,” says Michael Moro, the CEO of Genesis Global Capital. “It can’t just be a long-only market. It should be perfectly okay to take the other side, to think that prices are going to fall, and to make that short bet.”
Genesis passed the billion dollars in bitcoin loans milestone on December 14, 2018, less than three months after announcing it had made $500 million in loans since its launch in March 2018. To put that another way, Genesis made another $500 million in bitcoin loans during the last quarter of 2018.
As the price of bitcoin fell 39% over the last two months of the year, Genesis experienced its busiest period so far. New hedge funds and trading firms utilizing “spot” borrowing, combined with new business including crypto collateral—and even the occasional traditional cash loan in exchange for crypto collateral—increased Genesis’ active loans outstanding to $153 million, up from $23M in Q3 2018.
Interest rates on the cryptocurrency loans range from about 10% to 12% for highly liquid cryptocurrencies like bitcoin, depending on how risky Genesis deems the way the customer plans to use the loan. The less liquid the cryptocurrency, the higher the starting interest rate.
The massive increase in loan originations was jump-started by a 16% drop in the price of bitcoin on November 14, as a result of interest from short sellers looking to profit from the drop. Brian Kelly, a cryptocurrency investor who’s been a Genesis customer for five years, sees this kind of transaction activity as crucial to the health of the cryptocurrency ecosystem. “Having an active two-sided market should help liquidity improve overall,” he says.
But not everyone shorted crypto. In fact, Moro says that only about 11% of bitcoin loans were used to bet against bitcoin’s rising price. Instead, he says, the most popular use of bitcoin was for companies like bitcoin ATM firms that need to take short-term possession of bitcoin, accounting for 50% of all loans, followed by those buying cryptocurrency on one exchange and then selling on another at a higher rate, a process call arbitrage.
Bitcoin was the most frequently borrowed cryptocurrency, comprising 75% of all the originated loans. Ether (ETH) and XRP were the second and third most frequently borrowed cryptocurrencies, with ETH borrowing more than doubling since Q3 but still comprising less than 10% of the total loan book. XRP composition since Q3 is down 50%, which Moro attributes to the cryptocurrency’s relative strength over that period. The concentration of loans outside the top three decreased as a result of bitcoin jumping nearly 10% in one month.
Heading into Q4, Genesis’ loan portfolio was about 60% BTC and 40% alt-coins, with XRP constituting nearly 50% of altcoins, according to the report. Prior to Q4, 98% of bitcoin on loan was used exclusively for hedged use cases such as arbitrage, basis capture, and remittance.
Genesis is in the unusual position of being run by a parent company, Digital Currency Group, that has invested in more than 125 cryptocurrency startups globally. That company is headed up by Barry Silbert, the founder of SecondMarket, which was acquired by Nasdaq in 2015 to help startups sell shares before they go public.
As a result of having direct access to this pipeline of venture-backed and, more importantly, venture-vetted crypto startups, Moro’s other company, SEC registered Genesis Global Trading, started unofficially lending crypto as far back as 2014 to what he calls the company’s “friends and family” clients. “We didn’t think about too much of it at the time,” he says.
But by the end of 2017, at the peak of a crypto-frenzy that saw the overall cryptocurrency market reach $800 billion, Moro joined a fleet of other companies looking to profit even in a down market and spun off the trading company’s lending operations into a stand-alone entity.
As a result of this rising interest, Genesis is far from the only company in the space. Last year hedge fund manager Michael Novogratz’ company, Galaxy Digital, invested $52.5 million in crypto lending startup BlockFi. Other competitors include crypto startup Aave, which raised $16.5 million in an initial coin offering (ICO) in part to power its EthLend lending product, and early entrant Salt Lending, which was founded as far back as 2016.
Facing this rising tide of competitors, Genesis is looking to even further diversify its revenue streams. Moro says that while 75% of the $153 million he has in the portfolio is denominated in bitcoin, 13%, or about $20 million, is for lenders who don’t want to sell their bitcoin at today’s low price of $3,381, down from its all-time high of $19,000 in 2017, but want to generate a bit of revenue by using it as collateral for cold hard cash.
“We wanted to see if there was a demand for that, and there was,” he says.
-Michael del Castillo Forbes Staff
Haute-Couture Designer Karl Lagerfeld Has Died
Haute-couture designer Karl Lagerfeld has died at the age of 85, French media reported on Tuesday.
German haute-couture designer Karl Lagerfeld, artistic director at Chanel and an icon of the global fashion industry for over half a century, has died, a source at the French fashion house Chanel said on Tuesday. He was 85.
Lagerfeld, instantly recognizable in his dark suits, pony-tailed white hair and tinted sun glasses, was best known for his association with Chanel but simultaneously delivered collections for LVMH’s Fendi and his own eponymous label.
French celebrity online magazine Purepeople said Lagerfeld died on Tuesday morning after being rushed to a hospital in Neuilly-sur-Seine just outside Paris the night before.
A spokesman for Chanel was not immediately available for comment.
Lagerfeld was artistic director at Chanel. A spokesman for Chanel was not immediately available for comment. -Reuters
– Sudip Kar-Gupta
The Coffee Farmers Betting On Blockchain To Boost Business
On a bustling street near the shiny new international airport in Ethiopia’s capital is a small coffee roastery with big dreams.
Nearly 40 Ethiopians – a third of them women – sift, roast and package prized Arabica beans for export to Europe under the Moyee brand, founded by a Dutch social entrepreneur.
The roastery, together with the innovative use of blockchain technology to ensure the supply chain is transparent, represents an attempt to keep as much of the profits as possible in Ethiopia, one of the world’s poorest countries.
“It’s the world’s favorite drink. We drink over 2 billion cups a day,” said Killian Stokes, who set up the Irish branch of Moyee.
“The industry’s worth $100 billion and yet 90 percent of coffee farmers in Ethiopia live on less than $2 a day.”
That is partly because most exporters process the beans elsewhere, but also down to price fluctuations and other factors that make coffee growing a precarious business.
To make things fairer, Moyee has created unique digital identities for the 350 farmers it currently works with – meaning buyers can see exactly how much each individual grower is paid, with prices set at 20 percent above the market rate.
Now the brand, whose slogan is “radically good coffee”, wants to use blockchain to take that to the next level – allowing buyers to tip farmers, or fund projects such as a new planting program, through a mobile app.
The U.N. Food and Agriculture Organization (FAO) said in a recent report that blockchain had huge potential to address challenges smallholder farmers faced by “reducing uncertainty and enabling trust among market players”.
The technology, used to underpin cyber-currencies like Bitcoin, allows shared access to data that is maintained by a network of computers and can quickly trace the hundreds of parties involved in the production and distribution of food.
Once entered, any information cannot be altered or tampered with.
‘BIGGER THAN THE INTERNET’
Siobhan Kelly, an advisor to the Food Systems Programme at the FAO, said blockchain would ultimately be “much bigger than the internet”.
“Within 10 years – it’ll take probably 10 years – it’s going to be a major revolution, for everything,” said Kelly.
Fruit farmers in Caribbean nations are also looking at using blockchain to attract better-paying customers, bring traceability and build a credit trail.
“It’s an innovation that is poised to empower local farmers in the Caribbean region,” said Pamela Thomas, executive director of the Agriculture Alliance of the Caribbean (AACARI), a regional network of nearly 100,000 farmers.
AACARI’s project has two components: auditing by accredited professionals to ensure farmers adhere to the Global GAP (good agricultural practices) standards, and a digital marketplace where buyers can find detailed information about the produce.
Global GAP is a voluntary standard required by many European and U.S. supermarket chains.
Vijay Kandy, whose company is building the blockchain platform, said the auditing process would allow farmers to deal directly with buyers – bypassing the middlemen that many currently rely on – and make access to credit easier.
“One reason why buyers from faraway places or different countries go through middlemen is because they rely on them to make sure farmers are following these good practices,” he said.
One such buyer is London-based Union Hand-Roasted Coffee.
The company sources its coffee directly from growers’ cooperatives to ensure higher quality, pays farmers more than minimum price set by the global Fairtrade organization, and works with more than 40 producer groups in 14 countries.
“We currently undertake direct interviews to verify farmers have been paid, but it’s very time- and labor-intensive to do that and to record all that data,” said Steven Macatonia, who co-founded Union in 2001.
“So to have a much more simple system where we can get a confirmation that payment has been received and how much that is, that could be hugely beneficial,” he said.
Price fluctuations and the impact of climate change make coffee a particularly challenging crop to grow.
“Large companies’ profits usually increase when prices are low, but the profit for farmers does not, and in some cases it may cost them money to produce coffee,” said Aaron Davis, head of coffee research at Britain’s Royal Botanic Gardens at Kew.
Davis’s latest research shows climate change and deforestation are putting more than half of the world’s wild coffee species at risk of extinction.
Ethiopia – the birthplace of Arabica, the world’s most popular coffee – is of particular concern. Up to 60 percent of the land used to grow coffee could become unsuitable by the end of the century, Davis found.
“The more a farmer is paid, the more resources he will be able to devote to climate resilience,” he said.
Both Davis and the FAO’s Kelly however cautioned that blockchain technology was not going to be a “quick fix”, with farmers around the world facing multiple challenges.
“Farmers need access to affordable seeds, to affordable finance and credit when they need it … and these things are not going to be given by blockchain,” said Kelly. -Reuters
-Thin Lei Win @thinink
Morocco Looks To French As Language Of Economic Success
Morocco’s economy is getting lost in translation.
With so many students dropping out of university because they don’t speak French, the government has proposed reintroducing it as the language for teaching science, maths and technical subjects such as computer science in high schools.
It also wants children to start learning French when they start school.
The country’s official languages are Arabic and Amazigh, or Berber. Most people speak Moroccan Arabic – a mixture of Arabic and Amazigh infused with French and Spanish influences.
In school, children are taught through Arabic although they don’t use it outside the classroom. When they get to university, lessons switch to French, the language of the urban elite and the country’s former colonial masters. Confused? Many are.
Two out of three people fail to complete their studies at public universities in Morocco, mainly because they don’t speak French.
The linguistic morass has stymied economic growth and exacerbated inequalities in the North African country, where one in four young people are unemployed and the average annual income runs at approximately $3,440 per person, according to the International Monetary Fund (IMF) – less than a third of the world average.
The plans to broaden the teaching of French go to the heart of Morocco’s national identity.
They would overturn decades of Arabisation after independence from France in 1956 and have triggered a furor in parliament, where members of the Islamist PJD party, the senior partner in the coalition government, and the conservative Istiqlal party view them as a betrayal.
The disagreement has delayed a vote on the changes.
“Openness to the world should not be used as an excuse to impose the primacy of French,” said Hassan Adili, a PJD lawmaker.
Proponents say the changes reflect the reality that French reigns supreme in business, government and higher education, giving those who can afford to be privately schooled through French a huge advantage over the majority of the country’s students.
“In the Moroccan job market, mastery of French is indispensable. Those who do not have command of French are considered illiterate,” said Hamid El Otmani, head of talent and training at the Confederation of Moroccan Employers.
Even before parliament votes on the changes, Education Minister Said Amzazi has okayed the roll-out of French in some schools, declaring its use in teaching scientific subjects as an “irreversible choice”.
Like many Moroccan politicians, his children received a private education.
“When decision-makers start sending their children to public schools, only then can we say that we have a successful education system,” said Jamal Karimi Benchekroun of the co-ruling socialist PPS party.
Amzazi did not respond to a request for comment.
Frustration over jobs and poverty has fueled periodic protests in Morocco, but the country has avoided the sort of instability suffered by other North African states, where pent-up anger has triggered uprisings and provided fertile ground for Islamist extremism.
King Mohammed VI, the ultimate power in Morocco, has proven adept at introducing limited reforms in response to popular protest. He has spoken publicly about the need to teach foreign languages to students to reduce unemployment and has made the economy a top priority.
Last year, he sacked the minister for finance after calling on the government to do more to boost investment.
C’EST LA VIE
Problems with language are not unique to Morocco. In neighboring Algeria, another former French colony, students are also schooled in Arabic only to be greeted “en francais” in university and the workplace.
French’s pre-eminence reflects Paris’ continuing influence in the region. France is the biggest foreign direct investor in Morocco and large companies such as carmakers Renault and Peugeot employ tens of thousands of people.
Privately-run universities such as the International University of Rabat (UIR) have courses geared toward high-growth industries such as aerospace and renewable energy and offer tuition in French and English.
But a year at UIR can cost up to $10,000 in fees, way beyond the budget of most Moroccans. They go instead to non-fee paying public universities, where the abrupt transition to studying in French is frequently a burden for students and their lecturers.
“Sometimes we find ourselves giving French language courses during economy classes,” said Amine Dafir, economy professor at Hassan II University, a public institution in Mohamedia, near Casablanca.
Hamid Farricha, 37, dropped out of his applied physics and computer science degree at Hassan II University during the first year. He dreamed of becoming an engineer but the language barrier meant he struggled to keep up.
Trying to find Arabic translations for French scientific words was a drain on his time.
He switched instead to studying mechanics at a vocational school. He still had to master French to get hired.
“The biggest challenge after earning my diploma was writing a CV and sitting for job interviews in French,” Farricha said.
He got a job as a technician at a plant repairing car frames, paid below Morocco’s minimum monthly salary of 2570 dirhams, or $270.
Farricha was one of the lucky ones. Morocco’s economy cannot absorb all the young people looking for work. Around 280,000 graduates entered the labor force last year but only 112,000 jobs were created.
The unemployment rate for graduates is 17 percent, above the national rate of 9.8 percent, according to data from Morocco’s planning agency.
Morocco’s reliance on small and medium-sized companies which do not typically employ graduates, and austerity drives which have cut public sector jobs are part of the reason for the high rate of graduate unemployment.
The education system is also failing to prepare students for work.
In addition to high dropout rates, Moroccan students score badly compared to peers on international tests, and at university level, students oversubscribe to social science fields at the expense of technical subjects, according to an IMF report in late 2017. That means many don’t have the skills employers are looking for when they graduate.
Even for roles not requiring a degree, French is a must. On the French website of Morocco’s job promotion agency, almost all employers were looking for French speakers, including for jobs as guards, waiters, cooks and drivers.
Determined to get ahead, Farricha worked on his French while employed at the plant. He read newspapers and books in his spare time and gave himself a daily list of new expressions and vocabulary to learn.
He went back to university in 2014 for a degree in French law and is studying for a masters in diplomacy and international arbitration.
To meet his living costs, he teaches French to other students. -Reuters
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