According to data from the cryptocurrency research company Messari, in 2021, cryptocurrency loans issued a total of US$25 billion in outstanding loans to individual and institutional customers. A year ago, this figure was only US$1.4 billion.
Along with the rapid increase in the price and market value of cryptocurrencies such as Bitcoin and Ethereum, there is an increasingly large cryptocurrency lending market.
A large number of U.S. currency investors areBy collateralizing their cryptocurrency, they can buy houses, cars and more cryptocurrencies. They obtain these loans from non-bank lending institutions and blockchain-based automated platforms.This form of lending is not settled in fiat currency, but encrypted currency.
According to data from the cryptocurrency research company Messari, in 2021, cryptocurrency loans issued a total of US$25 billion in outstanding loans to individual and institutional customers. A year ago, this figure was only US$1.4 billion.
People use cryptocurrency loans for the same reasons they use securities loans—to gain more liquidity and benefit from rising asset prices.
The price of Ethereum has soared nearly 10 times in the past year, which far exceeds the interest rate of mortgage lending through Ethereum. at the same time,Borrowers can also avoid capital gains tax through this strategy.
In the cryptocurrency loan platform Celsius Network mortgage a bitcoin, the borrower needs to pay 0%-8.5% interest, depending on the loan amount and the ratio of the value of the collateral.
Celsiu CEO Alex Masinsky said that part of the company’s loans comes from hedge funds that are hungry for income in a low interest rate environment. He recommends that customers borrow money to repay their student loans and credit cards.
Antoni Trenchev, co-founder and managing partner of Nexo, a cryptocurrency lender, said that cryptocurrency lending can turn some of your digital assets into real-world profits.
But correspondingly, this loan strategy is also accompanied by a lot of real risks.
Like traditional securities loans, cryptocurrency lending requires a certain percentage of collateralized assets.If the price of the collateral drops, the lender has the right to require the customer to pursue a deposit or even seize all their mortgage assets;If the lender goes bankrupt or becomes a victim of hacker theft, there is no federal insurance to compensate the depositor.
The rapid growth of the cryptocurrency lending market and the financial risks it brings have attracted the attention of regulators.
Wall Street sources previously mentioned that Coinbase, the largest cryptocurrency exchange in the United States, disclosed that it received a notice from the United States Securities Regulatory Commission (SEC) last Wednesday that the SEC intends to warn and sue the company because of Coinbase’s plans to launch a product, Coinbase Lend. Coinbase Lend users can earn interest by providing loans of some cryptocurrency assets held on the Conibase platform. The first stable currency USDC loan that can be launched will have an annualized rate of return of 4%.
In addition, New Jersey’s securities regulator accused the cryptocurrency lending platform BlockFi of selling unregistered securities in July. BlockFi said it is in discussions with regulators and believes that these accounts are legitimate.
A large number of borrowers use loans to add to the cryptocurrency market, and they use the loans to buy Bitcoin, Ethereum, NFT, etc.
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