Meltem Demirors: Trillion Dollar Consumer Credit Business is Branching Out Into Crypto

Meltem Demirors, the chief strategy officer at CoinShares, a leading cryptocurrency treasury management firm, recently posted an informative thread on Twitter in which she noted that consumer credit is a “massive business.”

Demirors, a mathematical economics graduate from the prestigious Rice University, pointed out that “US consumers hold $4 trillion in mortgages, student loans, auto loans, credit card debt, and more.” She added that cryptocurrency-based credit began with companies such as BTCjam, a globally accessible peer-to-peer (P2P) bitcoin lending platform, and RipioApp, another crypto-focused lender.

BlockFi, Compound Finance are Among Top Crypto Lenders

According to Demirors, there was “an explosion in crypto credit products” in 2018 as there are now firms including BlockFi, which lets users take advantage of their digital assets without having to sell them. Companies like BlockFi offer products that are similar to LendingClub, which is America’s most established “online credit marketplace”, Demirors explained. However, BlockFi’s lending services use bitcoin (BTC) as collateral instead of fiat-based assets.

Going on to mention other crypto-related lenders, Demirors noted that the Dharma Protocol has been designed to facilitate decentralized lending, meaning that “users connect without an intermediary to offer crypto (coins) as collateral for credit (a loan).” Other P2P lenders include MakerDAO and Compound Finance, both of which have been developed on Ethereum.

Acknowledging that all these services are “cool”, Demirors asked “who has enough crypto to lock it up for cash?” She argued that “most likely, investors” who’ve made substantial investments in the crypto space would be more inclined towards using digital asset lending markets “as a way to [leverage] existing coin positions to buy exposure to other coins.”

However, Demirors asked “what happens when 5%, 10%, or more of the circulating supply of a coin is locked up?” At present, at least 2% of all ETH has been locked up (most of it in the MakerDAO ecosystem) and about 10% of Augur’s REP token has also been locked in various contracts. According to Demirors, it won’t be “pretty” when users try to access the collateral that has been locked up.

Bitcoin Lending Must Become Trustless In Order To Attract Major Investors

Caitlin Long, a 22-year Wall Street veteran who is now more focused on the crypto and blockchain industry, believes bitcoin lending is not yet “trustless.” In a detailed post on Forbes (published in January 2019), Long argued that cryptoassets “need financialization to succeed.” She explained that “financialization requires the development of markets for lending”, however Bitcoin’s protocol has not been designed to allow effective crypto lending.

“Major fiduciary institutional investors” will only make substantial investments in cryptos if digital asset markets are developed in a trustless manner - which would allow businesses to “borrow money to finance investment in … enterprises," Long noted.

Bitcoin Dives Below $8K, but We Are ‘A Long Long Way From Miner Capitulation’

Siamak Masnavi

According to data from CryptoCompare, on Thursday (November 21), between 08:30 UTC and 08:40 UTC, the price of Bitcoin (BTC) fell below $8,000 for the first time since October 25:

BTC-USD One Month Chart on 21 Nov 2019.png

The Bitcoin price kept falling, and by 10:11 UTC, it had reached $7,916, meaning that (at the time of writing) Bitcoin is down 2.11% in the past 24-hour period:

BTC-USD - 24 HOUR CC CHART - 21 NOV 2019.png

That was the bad news.

The good news is that prominent macro economist and crypto analyst/trader Alex Krüger believes that, despite what you may have heard, "the market is a long long way from miner capitulation."

In a post on Twitter around 16:51 UTC yesterday (November 20), Krüger explained that although miner capitulation could happen "eventually" we are nowhere near that point since the Bitcoin hash rate has only dropped 4% recently:

Yesterday, John Pfeffer, Founder of Pfeffer Capital, Travis Kling, Founder and CIO of Ikigai Asset Management, and Charles McGarraugh, Head of Markets for Blockchain discussed the outlook for Bitcoin with Bloomberg's Alastair Marsh at The Future of Digital Assets briefing in London.

Marsh started the discussion by asking the panel if they agreed with the idea that in the current macroeconomic environment the narrative of Bitcoin as a macro hedge is especially strong. 

McGarraugh stated:

"Yeah, I totally buy into that idea.I think that it's a great idea... Bitcoin is awesome because your property rights are an operational fact of possessing the private key rather than the jurisdictional artifact of recourse to a legal system that may or may not re-trade you at some future date."

Update at 11:36 UTC on November 21:

Around 11:21 UTC, Alex Krüger took to Twitter again, this time to explain under what scenario he could envision miner capitulation in the medium term:


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