Originally published on: September 25, 2024
As Bitcoin adoption continues to rise, financial institutions are delving into Bitcoin-backed lending, according to the latest insights from Ledn. With traditional interest rates tightening, institutions are looking towards the crypto market for new opportunities.
Ledn reported that institutional investors have been moving beyond spot Bitcoin exchange-traded funds (ETFs) to explore Bitcoin-backed lending options. The company processed a whopping $1.16 billion in cryptocurrency loans in the first half of 2024, primarily catering to financial institutions. Lenders have been enjoying impressive annual percentage returns (APR) of over 10% through these Bitcoin-backed loans.
Interest rates for borrowers using Ledn’s platform range from 11.4% to 13.4%, depending on the type of loan. By collateralizing with Bitcoin and offering lower-cost loans, Ledn enables borrowers to access additional yield, albeit with credit risks. In comparison, the US Federal Reserve recently reduced interest rates on short-term US dollar deposits, making Bitcoin-backed loans an attractive alternative for investors.
The Bitcoin lending market is seeing significant growth, with approximately $8.5 billion in outstanding Bitcoin-backed loans and projections to reach $45 billion by 2030. Ledn is facing competition from established platforms like Arch and Salt, as well as upcoming entrants like Cantor Fitzgerald, which announced its plans to launch an institutional BTC financing platform.
The rising popularity of Bitcoin-backed loans can be attributed to the increasing number of regulated US cryptocurrency custodians, such as Fireblocks, Coinbase Custody Trust, and Fidelity Digital Asset Services. These custodians provide a secure environment for holding spot BTC on behalf of investors, boosting confidence in the Bitcoin lending market.
With traditional financial services players and decentralized finance lending protocols entering the mix, the Bitcoin-backed lending sector is poised for further expansion. As institutions embrace the world of crypto, Bitcoin-backed loans are emerging as a viable option for investors looking to diversify their portfolios and capitalize on the growing demand for digital assets.
