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
Roadmap For African Startups
Francois Bonnici, Head of the Schwab Foundation for Social Entrepreneurship, explains how African impact entrepreneurs will continue to rise.
Does impact investment favor expats over African entrepreneurs? If so, how can it be fixed?
There is a growing recognition all over the world that investment is not a fully objective process, and is biased by the homogeneity of investors, networks and distant locations.
A Village Capital Report cited that 90% of investment in digital financial services and financial inclusion in East Africa in 2015-2016 went to a small group of expatriate-founded businesses, with 80% of disclosed funds emanating from foreign investors.
READ MORE | It’s Time For Africa’s Gazelles To Shine
In a similar trend recognized in the US over the last decade, reports that only 3% of startup capital went to minority and women entrepreneurs has triggered the rise of new funds focused on gender and minority-lensed investing.
There has been an explosion of African startups all over the continent, and investors are missing out by looking for the same business models that work in Silicon Valley being run by people who can speak and act like them.
In South Africa, empowerment funds and alternative debt fund structures are dedicated to investing in African businesses, but local capital in other African countries may not also be labelled or considered impact investing, but they do still invest in job creation and provision of vital services.
There is still, however, a several billion-dollar financing gap of risk capital in particular, which local capital needs to play a significant part in filling. And of course, African impact entrepreneurs will continue to rise and engage investors convincingly of the growing and unique opportunities on the continent.
What are the most exciting areas for impact investing and social entrepreneurship today?
After several decades of emergence, the most exciting areas are the explosion of new products, vehicles and structures along with the mainstreaming of impact investment into traditional entities like banks, asset managers and pension funds who are using the impact lens and, more importantly, starting to measure the impact.
At the same time, we’re seeing an emergence of partnership models, policies and an ecosystem of support for the work of social entrepreneurs, who’ve been operating with insufficient capital and blockages in regulation for decades.
The 2019 OECD report on Social Impact Investment mapped the presence of 590 social impact investment policies in 45 countries over the last decade, but also raises the concern of the risk of ‘impact washing’ without clear definitions, data and impact measurement practices.
In Africa, we are also seeing National Advisory Boards for Impact Investing emerge in South Africa and social economy policies white papers being developed; all good news for social entrepreneurs.
What role does technology play in enabling impact investing and social entrepreneurship?
The role of technologies from the mobile phone to cloud services, blockchain, and artificial intelligence is vast in their application to enhancing social impact, improving the efficiency, transparency and trust as we leapfrog old infrastructures and create digital systems that people in underserved communities can now access and control.
From Sproxil (addressing pirated medicines and goods), to Zipline (drones delivering life-saving donor blood to remote areas of Rwanda) to Silulo Ulutho Technologies (digitally empowering women and youth), exciting new ways of addressing inclusion, education and health are possible, and applications are being used in many other areas such as land rights, financial literacy etc.
While we have seen a great mobile penetration, much of Africa still suffers from high data costs, and insufficient investment in education and capacity to lead in areas of the fourth industrial revolution, with the risk that these technologies could negatively impact communities and further drive inequality.
Businesses At The Heart Of A Greener Future
With every day that passes by it becomes more apparent that the Earth is deteriorating and time is running out to save it. Scientists have estimated that we have less than a decade to save the planet before it is irreversibly damaged, mainly due to climate change.
Businesses claim the largest percentage of global emissions (at approximately 70% since 1988, according to The Guardian) which is an alarming statistic, especially in a time when the planet’s well-being is being compromised.
Many large business corporations are hastily coming on board with operating sustainably by transforming their practices and placing business ethics at the forefront of their priorities.
READ MORE | The Most Sustainable Companies In 2019
Last week, a round table discussion was held at the Fairlawns Boutique Hotel, Sandton hosted by Environmental Resources Management (ERM) – the world’s largest sustainability consulting firm. Their aim was to discuss how imperative it is for African businesses to get on board with sustainability.
“We have been talking about how to be sustainable for a long time but now it is time for us to do sustainability,” says Thapelo Letete, Technical Director of ERM.
An engaging and thought-provoking panel discussion ensued with representatives from ERM and mining companies, Anglo American and Gold Fields. They emphasized the importance of sustainability being recognized by investors, especially in mining and oil companies that rely solely on Earth’s natural resources.
Civil society has a colossal role to play in ensuring the sustainability of businesses. Due to the law of supply and demand in production, consumers are being urged to be mindful of their buying habits and to make sustainable decisions. These are as simple as minimizing the utilization of plastic straws by replacing them with metal or paper straws and reusable shopping bags and by recycling selected items.
READ MORE | Challenging The Gender Divide
“Research suggests that socially and environmentally responsible practices have the potential to garner more positive consumer perceptions of (businesses), as well as increases in profitability,” according to an entry in Sage Journals published in May.
The advancement of science, artificial intelligence and the rapid growth of the technological industry make it an undeniable fact that the Fourth Industrial Revolution is underway. Many businesses across the globe seem to be well prepared for this change. However, businesses in Africa seem to be vulnerable.
“It is difficult to say that all businesses in Africa are prepared for it. It is not a country specific thing but it does vary across corporations. There will be businesses that are well prepared and businesses that are not so well prepared,” says Keryn James, CEO of ERM.
A large part of sustainability also relies on empowerment and equality. Sub-Saharan Africa has the highest number of female-owned businesses who contribute a large amount of money towards their respective countries’ GDPs. However, most of these businesses struggle with the issue of scaling.
“Women sometimes underestimate their ability and they don’t necessarily have the confidence that they should have about the value that their businesses present. Women often take less risks than men,” says James.
“The issue of scaling is one that we see globally. One of the issues are access to funding to support in the investment and growth of their businesses.”
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Going forward, the availability of mentorship programmes and skills development opportunities for women, especially black women in business should be encouraged.
According to a study done by the UN Women’s organization, an average of 3 out of 7 women score higher in performance when they are placed in senior managerial positions. Additionally, if more women work, the more countries can exponentially maximise their economic growth.
Women will be empowered when given the correct skills and opportunities to be able to run their own businesses independently which would ultimately lead to the scaling of female-owned businesses in Africa and sustainable development.
The Nedbank Capital Sustainable Business Awards aim to recognize the efforts of businesses that operate sustainably and to encourage other corporations who intend to adopt more sustainable strategies into their practices. Initiatives such as these prove that business value also depends on how sustainable they are.
It is clear that the prioritization of sustainability and accountability in businesses is the only way forward in the midst of this global crisis. With a combination of will and the rigorous work that African businesses have put into sustainability initiatives and strategies, it is easier to be optimistic about our planet’s wellbeing.
Ex-Google Staffer Says After Split With Chief Legal Officer David Drummond: ‘Hell Does Not Begin To Capture My Life’
Former Google employee Jennifer Blakely has written a scathing blog post with allegations about how her affair with chief legal officer David Drummond unfolded.
A former member of Google’s legal team who says she had a child with the company’s chief legal officer, David Drummond, has written a scathing blog post about the way that their relationship unfolded within the search engine giant, including that he issued “terrifying threats” to take custody of their child after initially refusing to pay child support.
In a Medium post, Jennifer Blakely says that she was inspired to detail her experience after an explosive New York Times story last fall put a spotlight on how the company shielded top executives from harassment claims and sparked massive employee protests.
“Looking back, I see how standards that I was willing to indulge early on became institutionalized behavior as Google’s world prominence grew and its executives grew more powerful,” Blakely writes.
“Women that I worked with at Google who have spoken to me since the New York Times article have told me how offended they were by the blatant womanizing and philandering that became common practice among some (but certainly not all) executives, starting at the very top.”
While her relationship with the married Drummond was included in the Times story and first reported byThe Information in November 2017, this is the first time Blakely has written about the experience herself.
Drummond is one of several current and former Google executives who has reportedly had relationships with employees or extramarital affairs, including Eric Schmidt, Sergey Brin, and Andy Rubin.
READ MORE | Calling Out Sexual Harassment
Blakely alleges that after their relationship ended, Drummond had another relationship with a subordinate, which is against Google’s workplace policy. He is still employed by Google and made more than $47 million last year.
Blakely says that she started working in Google’s legal department under Drummond in 2001 and that after he told her that he was estranged from his wife, they began a relationship in 2004. She says the two had a child together in 2007 and that Google’s human resources department then told her that one of them had to leave the department.
She moved to sales, an area where she had no experience, and subsequently struggled with her work. Blakely alleges that after she ultimately left the company at Drummond’s urging in 2008, but that while they were living together in Palo Alto, he broke off their relationship via text message.
“‘Hell’ does not begin to capture my life since that day,” she writes. “I’ve spent the last 11 years taking on one of the most powerful, ruthless lawyers in the world. From that fateful night forward, David did things exclusively on his terms.”
She alleges that Drummond initially refused to see their son or pay child support, and then fought against her in a custody battle. While she says they ultimately reached a settlement and he began paying child support, she writes that “months or years” would go by when he wouldn’t see their son. In 2014, Drummond allegedly showed her an article about Eric Schmidt’s reported history of extramarital affairs during an argument, implying that the executive’s position granted him impunity.
“His ‘personal life’ (which apparently didn’t include his son) was off limits and since I was no longer his ‘personal life’ it was time for me to shut up, fall in line and stop bothering him with the nuisances or demands of raising a child,” Blakely writes.
Blakely’s story is the latest in a string of public posts from former Google employees highlighting issues with the company’s culture and policies (or their lack of enforcement).
One of the women who helped organize last fall’s protests, Claire Stapelton, recently wrote about her experience with retaliation, another employee detailed the disappointing way the company’s human resources department dealt with her harassment reports, and former senior engineer Liz Fong-Jones posted about “grave concerns” with the company’s decision making in general.
The outspokenness of Google employees exemplifies — and has helped spur — a broader activism in the tech sector that has seen workers speaking out against their employer’s internal policies and business decisions.
Blakely’s post also taps into the larger #MeToo movement which has drawn attention to sexual harassment and abuse in the workplace across industries.
“Until truth is willing to speak to power and is heard, there’s not going to be the sea change necessary to bring equality to the workplace,” she writes.
Neither Google nor Drummond immediately responded to a request for comment.
This story is developing.
-Jillian D’Onfro; Forbes
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