Bear Market Is Helping Crypto Lending Businesses to Prosper

On Wednesday (2 June 2019), Bloomberg reported that while "a growing number of cryptocurrency ventures struggle for funding" in the current bear market, crypto lending businesses seem to be "thriving" rather than suffering.

Crypto lending businesses that primarily focus on the needs of individual HODLers (who might need a loan, for example, to buy a car or pay their taxes), such as Salt Ledning, allow you to borrow fiat currency (usually USD) or fiat-backed stablecoins using your crypto as collateral, while others, such as Genesis Capital, that mainly focus on institutional borrowing, can lend crypto (against fiat). 

The Bloomberg report says that these lenders are saying that "they’re finding strong demand from borrowers who don’t want to sell their virtual coins at depressed prices, as well as from big investors eager to borrow coins for short selling." Here are three examples:

  • "BlockFi says its revenues and customer base have grown 10-fold since June, when Michael Novogratz’s Galaxy Digital Ventures invested $52.5 million."
  • "Aave, which owns online crypto-lending marketplace ETHLend, just opened an office in London, plans to enter the U.S. soon and is nearing profitability."
  • "Salt Lending, which already employs 80 people, said it’s hiring more every month as its revenue ticks higher."

Bloomberg says that, initially, crypto lending startups, most of which were reportedly launched in 2017, were "offering enthusiasts a way to borrow cash without having to sell down their stockpiles of Bitcoin or other crypto assets they believed would soar even higher," but after "prices crashed in 2018," they "pivoted into new roles and continued to flourish," and this type of crypto business may in fact "fare even better in bad times than good."

Michael Moro, the CEO of Genesis Capital, told Bloomberg in a phone interview:

“The bear market has certainly helped -- at least has fueled the growth... 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.”

Moro also said that Genesis Capital "has already issued $700 million of loans" and that it currently has "about $140 million in loans outstanding with an average duration of six weeks." Apparently, Genesis is planning "to more than double its staff in the coming year to as many as 12 people, and it’s looking at growing in regions such as Asia."

Their loan terms are a follows:

  • "Minimum loan size is $100,000"
  • "Fixed durations from two weeks to six months"
  • "USD collateral accepted to back loan"

Bloomberg says that Genesis "typically requires customers to deposit around $1.2 million in fiat to take out $1 million of crypto," and that if an institution wishes to borrow Bitcoin, for example, it is charged "an annual rate of between 10 percent and 12 percent."

According to Bloomberg:

  • Businesses that accept crypto as collateral for fiat cash loans "usually demand much larger buffers to ensure they don’t get burned by falling prices." For example, Zac Prince, the CEO of BlockFi, told them that his firm "typically requires customers deposit $10,000 of digital coins to take out $5,000 in fiat."
  • When the price of the crypto collateral falls, "customers face margin calls, often starting with a warning that their holdings may be sold off soon." In the case of BlockFi, "margin calls are triggered if the price of the crypto collateral falls by 35 to 60 percent from the time the loan was granted," and approximately "20 percent of the startups’ loans faced margin calls last year."

BlockFi says this is what happens if the value of your cryptoassets significantly change during one year term of the loan:

"If the value of your coins significantly increase then they are kept in storage until the loan is paid. If your coins significantly decrease then that sets off a trigger event, and you will have to add more collateral to your account to maintain a minimum LTV ratio. You can use the value of your cryptoassets stored with BlockFi to make principal and interest payments at anytime. We plan to add the ability to draw more USD funds in the event of price appreciation over time."

And here is how BlockFi defines a trigger event:

"A trigger event happens when the value of your collateral drops and thus increases the LTV of your loan. The first trigger event occurs at a 70% LTV, which would require a 50% drop from the price at loan initiation. At this point, you have 72 hours to take action by positing additional collateral or paying down the loan balance. We will keep you informed if your LTV starts to near the 70% mark so you can take action preemptively."

One happy customer of BlockFi is Angela Ceresnie, the CEO of Climb Credit. She says:

"The ability to get liquidity on my significant Bitcoin and Ethereum holdings, without selling them, is something that I was looking for and found with BlockFi. For long term holders like myself, the tax benefits alone make the value proposition a no brainer."

 

Featured Image Credit: Photo via Pexels.com

Burn Satoshi's Bitcoin, Suggests Paxful CEO in Thought Experiment

John Moore
  • Paxful CEO Ray Youssef proposes 'burning' the stash of Bitcoin alleged to belong to Satoshi Nakamoto
  • Bitcoin creator said to hold up to 980,000BTC in dormant wallets, theoretically worth US$10 billion
  • Without complete consensus on the move,  burning the coins would cause another Bitcoin fork

One member of the global cryptocurrency community has come up with what can best be described as a scorched earth policy for settling the debate over who is Satoshi Nakamoto once and for all. 

With the spotlights of Bitcoin watchers firmly on the latest questionable claim to be the creator of cryptocurrency as we know it, Ray Youssef - CEO and co-founder of crypto marketplace and wallet service, Paxful - in a now-deleted Tweet - took to Twitter to propose a Bitcoin soft fork that would 'burn' the BTC its  pseudonymous developer is thought to hold in wallets that have never been active.

His suggestion was ignored by a group of crypto-luminaries who he tagged for support, and apparently rounded on by commenters. 

Blockchain analysis undertaken in 2013 by Security Researcher and Bitcoin Blogger, Sergio Demain Lerner , alleged that Nakamoto may have amassed something like 980,000 bitcoin as a lone miner in the early days of its existence. When the BitMEX exchange team revisited Lerner's work a year ago, they reduced this estimate to 700,000 - but didn't rule out the possibility that the figure could be much higher.

Thus, the cryptocurrency the creator fo bitcoin likely accumulated between Jan and August 2009 (or late-Jan 2010, depending on whose opinion you listen to) could, theoretically, be worth something in the region of $10 billion at the current market rate.

A more realistic assessment of their value, however, centers on the idea  that - as they are sitting in the most closely watched wallets on the crypto scene - any attempt to move or sell them would cause massive upheaval in the global cryptocurrency markets, crash the BTC price and gut their value before a significant amount could even make it to a hot wallet somewhere. 

This scenario has been a sword of Damocles threatening Bitcoin since the Satoshi's Stash theories first appeared amid early interest in the concept, explaining the appeal of simply removing control of the coins from their owner - especially to someone with a vested interest in Bitcoin's value. However, Youssef's suggestion that such a measure would 'smoke out' Nakamoto's real life persona, was obviously considered to be ethically outrageous by some and a logistical nightmare by almost everyone. 

It's not that it isn't technically possible. It is. However, unless it had the consensus of the entire Bitcoin network (saying it wouldn't is a pretty safe bet), the fork would create two blockchains and a 'Schroedinger's Nakamoto' - where Satoshi was very rich on one, but not on the other. 

Let it not be forgotten that a similar schism led to a fork in the Ethereum blockchain following The DAO hack a few years back, a split that we have to thank for the existence of Ethereum Classic, which stuck with the pre-DAO blockchain. Let it also not be forgotten that recent Bitcoin forks have not worked out so well for most of the parties involved. Let it also not be forgotten that Nakamoto is considered with almost deity like reverence by some crypto-evangelists. All in all, it seems Youssef is now regretting making the suggestion

So, while Youssef's suggestion could well have been a way to get the real Satoshi Nakamoto to please stand up, it would likely have done much more damage than good.