As institutional demand grows for cryptocurrencies, Genesis Global Trading is launching a digital currency lending business called Genesis Capital to enable investors to borrow bitcoin, ether and others for a fixed amount of time.
One of the uses will be for investors who want to bet against bitcoin without taking on a lot of risk.
"This will be the first time that institutional investors will get the opportunity to really borrow and hedge or short the digital currency spot market in size," Genesis Capital CEO Michael Moro told CNBC.
In a press release, the company said, "Firms trading bitcoin futures or options find it advantageous to have bitcoin on borrow because they can short-sell those borrowed bitcoin to delta-hedge their long derivative positions."
Moro added that typically it is quite challenging for institutional investors to borrow a sizable amount of bitcoin or another cryptocurrency to ultimately short. Under short selling, traders sell borrowed securities in hopes of buying them back later at a lower price before they have to return the securities back to the holder.
Demand for this product has already brought Genesis Capital some noteworthy clients in the cryptocurency world, including Andreessen Horowitz-backed digital currency hedge fund BlockTower Capital.
"Genesis Capital is providing a valuable service to cryptomarkets via their lending business by facilitating shortselling," Ari Paul, CIO of BlockTower Capital, told CNBC. "This enables more efficient price discovery and allows managers to hedge risk and establish long-short spread trades."
BlockTower is a client of Genesis both for OTC trading and crypto-asset borrowing. DV Chain, a cryptocurrency trading firm, is also a client.
"The majority of trading volume in several cryptocurrencies is denominated in bitcoin, which has created a need for a bitcoin lending market," said Garrett See, DV Chain's CEO. "We're excited to see the continued growth of institutional interest in the asset class and we welcome the launch of Genesis Capital's lending business."
Experts say the launch of the lending business is part of the broader buildout of the cryptocurrency ecosystem. As the futures market grows, analysts say, the desire to utilize trading strategies that allow you to hedge or find ways to arbitrage digital currencies increases.