Fidelity Facilitates Use of Bitcoin as Collateral for Borrowing via BlockFi
Fidelity Digital Assets, the crypto division of the wealth management giant, will facilitate institutional clients to use their Bitcoin (BTC) holdings as collateral for cash loans.
According to Bloomberg news report, the firm collaborated with cryptocurrency centered lender BlockFi to disburse the approved loans. Institutional customers of Fidelity’s custodial service will be able to withdraw cash loans from their Bitcoin holdings without a need to transfer it anywhere, subject to having an account with BlockFi.
The targeted clients of this facility will be mainly hedge funds, OTC (over-the-counter) trading desks and miners. Through the process of over-collateralized lending, institutions will be able to access liquidity without terminating their long position on Bitcoin. The cash can be utilized to open leveraged positions and establish hedged strategies or to manage business expenditures.
Spokesperson of Fidelity stated that the facility is a portion of a “demand for increased capital efficiency” among its clients. Fidelity said “Our full-service offering that includes custody and trading will continue to help institutions enable capital efficiency, while prioritizing asset safety and stillness.”
The loan-to-value ratio is fixed at 60%, implying that collateral worth $1,000 will facilitate a loan of up to $600. However, rule is amendable as per specific requirements of an institutional client. Fidelity explained that it does not have any pre-fixed rules on loans, confining its participation in the tri-party deal as a mere custodian of Bitcoin.
Fidelity Digital Assets has been offering Bitcoin custodial services since October 2019. In recent times, the firm also started providing its services to the Asian market. BlockFi is a key crypto lender, providing interest on deposits done on the platform.
Even though BlockFi is a company focused on retail clients in terms of raising funds in the form of deposits, the money is basically lent to institutions. In recent times, the company has recently rolled out a Visa debit card with Bitcoin rewards.