As many cryptocurrency ventures struggle for funding while others are cutting down staff and shutting down, the lending corner is not freezing in the crypto winter. Creditors in the crypto space confirm that they have strong demand from borrowers who are hodling avoiding to sell their digital assets at depressed prices.
Also, lenders have demands from big investors ready to borrow coins for short selling. Thus, the lenders are fuelling both sides of the bitcoin bust by helping enthusiasts pay their bills awaiting a rebound and on the other side enabling bets by those who think that the price will plunge further.
Crypto-Backed Lending is Gaining Popularity
BlockFi stated that its customer base and revenue have expanded ten times since June after Michael Novogratz‘s Galaxy Digital Ventures invested around $52.5 million. Aave, the owner of ETHLend, opened a London office and said that he plans to enter the US market since the company is nearing profitability and sustainability. Salt Lending also confirmed that they are hiring more every month as its revenue rises higher.
Most lenders entered the crypto industry in 2017 originally providing fanatics with a way to borrow funds without having to sell their crypto assets they thought would ascend even higher. But, as the bears ruled in 2018, lenders changed camp into new roles and continued to thrive. The crypto lenders seem to thrive well even in the bad times than in the good times.
Genesis, launched in March 2018, has already issued at least $700 million of loans to institutional investors. It now has approximately $140 million in loans outstanding with average duration of six weeks. Business is good that the company is seeking to grow in other regions like Asia since it has been profitable since its launch.
The company needs customers to deposit at least $1.2 million in fiat currency to take out $1 million of crypto. Its annual rate charges range between 10% and 12% to borrow bitcoin. Companies and institutions that accept cryptos as collateral for fiat loans generally need much larger buffers to protect themselves against falling prices.
For example, BlockFi needs customers to deposit $10,000 of cryptos to take out $5,000 in fiat.
Whenever collateral plunges in value, customers receive margin calls warning them that their holdings may be sold off soon. At BlockFi, the margin calls are executed when the collateral falls by 35-60% from the time the loan was approved and granted. Around 20% of the start-ups’ loans faced margin calls in 2018 as the markets experienced cascading falls.
But, most borrowers added collateral when they received these warning calls. Lenders are not fully safe from the crypto world turmoil. The SEC has been reviewing Salt’s initial coin offering to determine whether the sale amounted to an unregistered, hence illegal, securities offering.
Most lending companies are currently prospering and planning to expand their product offerings. Although everything thrives in the bull market, the actual magic happens when a product thrives in a bear market which makes the crypto lending model one of the rarest businesses worldwide.