Behind the Market Structure: Michael Moro, CEO, Genesis Global Trading

Behind the Market Structure

An Interview with Genesis Trading CEO Michael Moro

Q2 2022

Crypto-asset markets may be experiencing extreme movements but, over time, volatility has dipped as institutional participation has grown and derivatives trading has expanded, according to Michael Moro, CEO, Genesis Trading, a full-service digital currency prime broker.

“I think volatility will continue because, from a market infrastructure perspective, we are not close to the final product. Having said that, we have seen volatility declining over the nine years we have been operating, as more and more institutions have entered this space,” Michael Moro states in an interview with David Easthope, who heads up fintech research at Coalition Greenwich.

That’s because, unlike retail investors, institutions are “thoughtful, strategic investors” that plan “how to accumulate a position and exit it,” says the CEO of Genesis, which launched its own institutional crypto OTC trading desk in 2013 after its founder, Barry Silbert, “went down the Bitcoin rabbit hole in early 2012 and came up the other side as a complete believer.”

From Retail First to Institutional Full-Service

Undoubtedly, institutional participation in crypto assets has materialized gradually, and the bitcoin market has remained “retail first” for a long time, which “from a market construction perspective is very backwards,” Michael Moro points out.

Coalition Greenwich research confirms that institutions are taking the reins in crypto investing. As David Easthope notes, “The market is moving beyond spot trading as institutional investors, especially in the U.S. and U.K./Europe, have taken a greater interest in digital assets, and traditional financial products have been created, including a variety of futures, options and investment funds.”

When Genesis launched its digital assets business, Bitcoin was the only cryptocurrency, and the market was only spot. “Bitcoin was an illiquid, off-the-run, hard-to-value thing that fit neatly into everything else we were trading at the time. We thought that Bitcoin might be the birth of a brand-new asset class, or it could be a technological failure. We decided to take a shot at Bitcoin being ‘a thing.’ And, as an SEC and FINRA-registered broker-dealer, we said let’s get institutions involved,” states Michael Moro.

However, it was the 2017 crypto bull run with Bitcoin’s meteoric price rise from <$1,000 to $20,000 and retail-fueled initial coin offering (ICO) mania, followed by the 2018 bear run, that “changed the game.” If the former ignited institutional interest, the latter was fortuitous for Genesis’ newly launched derivatives business, which “helped create an avenue for people to express a view either on the short side or to hedge an exposure.”

Today, the crypto-asset market has grown to include hundreds of digital currencies, stablecoins and other tokens. And firms like Genesis have “sequentially” built out a full-service suite from trading to custody to derivatives to lending and even crypto-specific services like staking (through sister company Foundry).

Says Michael Moro, “Nine years ago, we only had spot trading. Now, there are puts and calls. The futures market is very active, there’s a funding-lending market and the custody business. So, we are getting closer, building piece by piece, to some of the products you see in equities, for instance.”

Different Dynamics

Of course, crypto has a completely different dynamic from other asset markets. For one, it’s on 24/7 with no off-market cooling period to tame volatility. In addition, the interest-rate dynamic for borrowing and lending crypto assets is divorced from the traditional finance market, as most large banks keep away, resulting in a demand-supply imbalance for dollars. “That’s why even in relatively low-rate environments like today, rates can get to 7-9% a year for folks that are willing to lend into the crypto marketplace,” explains Michael Moro.

This increases when dollar demand escalates in a bull run. “We have seen big bull markets in Bitcoin, with rates kicking north into the high teens in 2020–21,” he says.

Tokenization to Improve Efficiencies

As for the buzz around tokenizing assets so that they can be moved around on ledgers and used as collateral, Michael Moro believes that efforts to create a tokenized securities market haven’t succeeded yet “largely because people felt if you tokenize something, liquidity follows.” He asserts, “Tokenizing does not make illiquid things liquid.”

The traditional securities market’s move toward a more tokenized model would, however, increase efficiency, as settlements will happen faster. Crypto trades are settled in T+2 hours. “I think the tokenized securities market is going to get to a T+0 environment, as we will be able to locate assets much faster on the blockchain. So, while I don’t think tokenization creates liquidity, I think it certainly creates efficiency. That, in itself, will free up capital,” he states.

Undoubtedly, this will entail the “overhaul of an entire infrastructure that has been built over decades.” But, he says, “I am an optimist. I’d say within 10 years we will see the tokenized securities market really take off.”

He adds, “The fact that traditional markets are going to be incorporating elements of what we thought was an experiment nine years ago is tremendously exciting. That’s why I am so confident of the long-term success of the asset class. It is a brand-new asset class, but it is here to stay.”