ETFs
Bitcoin (BTC) ETFs and Bankruptcy Refunds Gave Crypto Lending a Second Wind
The crypto lending sector is recovering from the crypto winter, which blew up several big players, thanks to the bitcoin spot (BTC) exchange-traded funds (ETFs) and creditors recovering some of their assets from bankrupt companies.
“What I see is that this market has come back strong,” Mauricio Di Bartolomeo, co-founder of crypto lending company Ledn, told CoinDesk in a recent interview at the Consensus 2024 conference in Austin, Texas. “The market never really disappeared; it [just] I was afraid.”
Crypto loans are similar to conventional banking. Customers deposit bitcoin or other cryptocurrencies with a company like Ledn and earn interest or use that crypto to secure loans. Interest paid to depositors is generated by lending their crypto to others and charging them interest.
The sector imploded spectacularly in 2022 as crypto prices plummeted, with companies including Celsius, BlockFi, and Genesis filing for bankruptcy.
Since then, the digital asset sector has recovered from the bear market downturn. Prices have risen, with CoinDesk 20 Index up more than 200% since the end of 2022. The rally kicked into high gear late last year after BlackRock and other conventional finance giants applied – successfully – to create Bitcoin ETF in the United States. According to Ledn’s Di Bartolomeo, the positive narrative surrounding these funds is one of the main reasons users are returning to the lending market.
“Bitcoin went from $20,000 to $70,000 and became the center of the political race in the United States,” he said. “So that means there’s more interest, there’s a real product market for bitcoin as an asset and for bitcoin as loan collateral.”
In fact, Ledn treaty more than $690 million in loans in the first quarter, its most successful quarter since its inception in 2018. More than 84% of loans processed were directed to institutional clients, as demand increased after ETF approval Bitcoin in January. Ledn only processes loans in bitcoin, Ethereum’s ether (ETH) and two stablecoins: USDC and USDT.
The institutions participating in this sector are now mostly Wall Street market makers and crypto-native companies. “These are the companies that operate in the ETF markets as well as the spot markets,” Di Bartolomeo said. “Some made their names in crypto, others in TradFi.”
Another reason why users are returning to the lending market is that many companies that went bankrupt are starting to return their money to users. Many of them are now returning to the credit market, according to Di Bartolomeo.
When asked why this was the case, he explained that for most of these users, their investment thesis – if you hold them long enough, you’ll get wealth appreciation – came true. confirmed despite market slowdowns. These users have been “brought to their knees” by some bad actors, but as they begin to reclaim their assets, many of the “hardcore users” are unlikely to sell, he said. Di Bartolomeo added that this is when they turn to the credit market to use their assets for borrowing and lending.
“What I see is sort of undisputed proof that people want to hold onto their bitcoin for the long term and also want to have it both ways,” he said. A customer may be worth millions in bitcoins, but if they turn to a TradFi bank, they will not recognize their digital assets as collateral for a loan. “That’s what we [lenders such as Ledn] bridge [the gap] for these customers,” he added.
So how did a centralized lender like Ledn survive the crypto winter when many went bankrupt? The short answer is to stick to the fundamentals of lending and borrowing. Ledn only works with qualified and vetted institutions, has no asset-liability mismatch, and does not participate in DeFi yield farming, it said. “That means if someone lends me bitcoin, I lend bitcoin; if someone lends me a dollar, I lend dollars. There’s always a taker. And there’s always liquidity,” said Di Bartolomeo.
He also added that all lending and borrowing activities come with conditions, meaning if a user lends an asset on seven-day terms, Ledn lends it to another user who can return it in five days , thus providing liquidity to assets.
“People called us boring, and we said, look, this is the way we do things: boring and slow and safe,” he noted.