It puts lenders on both sides of Bitcoin’s bust: help believers pay their bills while they are waiting for a rebound and allow bets from people who think the drop has to go further.
BlockFi says that its revenue and customer base has grown 10-fold since June, when Galaxy Digital Ventures, founded by Michael Novogratz, invested $52.5 million. Aave, who owns the ETHLend online crypto-lending marketplace, just opened a London office, plans to enter the US soon and profitability is approaching. And Salt Lending, which already has 80 employees, said that it hires more every month, as its income increases.
In 2017, most lenders in the crypto industry started to offer enthusiasts a way to borrow cash without having to sell their stocks of Bitcoin or other crypto assets, which they thought would soar even higher. However, when prices collapsed in 2018, lenders took on new roles and continued to thrive. The loan niche, it seems, may be better in bad times.
In March, Genesis began to allow institutional investors to borrow virtual coins by depositing the United States Dollars. So far, $700 million loans have already been issued, said Moro. It now has an outstanding loan of approximately $140 million for an average period of six weeks. Genesis plans to double its staff to as many as 12 people in the coming year and is looking to grow in regions such as Asia.
Moro said “We’ve been profitable from day one. We’ve certainly proven that there is market demand, that there’s product fit and that it’s time to invest even more in this side of the business.”
The company typically requires customers to deposit around $1.2 million in fiat to get $1 million in cryptography. For example, it charges an annual rate of between 10 and 12 percent to borrow Bitcoin.
Bitcoin’s declined by more than 70% since the beginning of last year. Companies that accept the cryptocurrency or its competitors as collateral for cash loans usually require much larger buffers to prevent from being burned by falling prices. BlockFi, based in New York, usually requires customers to deposit $10,000 of digital coins in fiat for $5,000, said CEO Zac Prince.
When collateral value drops, customers face margin calls, often beginning with a warning that their holdings can soon be sold off. Margin calls at BlockFi are triggered if the crypto collateral price drops by 35% to 60% from the time the loan was granted. About 20% of the startup loans were subject to last year’s margin calls, Prince said. When warned, many more borrowers added collateral.
Lenders are not completely immune to the turmoil in the crypto world that is so common. The Securities and Exchange Commission examined Salt’s initial offer of coins-a fundraising process in which start-ups sell virtual coins to investors-and whether the sale amounted to an unregistered offer of securities, the Wall Street Journal reported in November, citing unidentified individuals familiar with the issue. The company has refused to comment.
However, most lending companies –including Salt –say that they prosper and plan to expand their product offerings.
“From a consumer perspective, we will start to look like a diversified fintech company – that started with loans,” Prince said. “Similar to a company like SoFi, who started as just a student lender and expanded to mortgages, wealth management, and now deposit accounts.”
In fact, BlockFi is planning to offer more credit products, including a Bitcoin savings account with interest and a loyalty card with a crypto. ETHLend works with other lenders in Switzerland and Australia to provide its technology so that they can also accept crypto collateral.
“Everything flies in the bull market, but true magic happens when it does well in a bear market,” Aave CEO Stani Kulechov said in a phone interview. “The crypto-backed lending model is one of the rarest.”