Ethereum and decentralized finance (DeFi) tokens are pushing Genesis Capital’s lending business to new heights, according to the firm’s Q2 Market Observations report published Wednesday.

Genesis, which is owned by CoinDesk’s parent company Digital Currency Group, reported that the lending firm is seeing bitcoin’s role changing in the ongoing bear market. From late 2020 until the end of Q2, Genesis saw bitcoin’s dominance in market cap decline from over 70% to under 45% while, during the same period, Ether and prominent DeFi tokens doubled in value. 

According to Genesis’ report, bitcoin accounted for 42% of the firm’s loan book in Q2–a drop of 12 percentage points from the end of 2020 and bitcoin spot trading was down to 47% in Q2 from highs of 80% in Q4 2020.

As DeFi grows and attracts the attention of institutional investors, demand for Ether is also growing. Hedge funds are increasingly turning to Genesis and other lenders to borrow ETH to deploy into DeFi protocols.

This trend is evident in Q2, which shows the firm’s largest quarter to date, with $25 billion in new originations – an 8-fold increase year-on-year from 2020. The firm’s cumulative originated value is now $66 billion since its launch in 2018.

The report also attempts to explain the May crypto market crash, which saw bitcoin plummet from highs of nearly $65,000 to $35,000 at the end of Q1. Tweets from Elon Musk that canceled Tesla’s merchant acceptance of bitcoin payments, ESG concerns, a “dangerously levered market,” regulatory scrutiny, “a spate of negative headlines,” and crackdowns on miners in China were cited as triggering a “cascade of liquidations and exhausted order book bids.”

Genesis’ report also looks ahead to technology upgrades, including Bitcoin’s upcoming Taproot activation and EIP 1559, which will change how Ethereum fees work. It also highlights the development of layer 2 scaling solutions like Optimism and Arbitrum in the DeFi sector. 

“Progress on the industry’s fundamentals combined with growing interest from traditional market participants will continue to push the sector forward,” the report concludes.