Value Nomad

September 30, 2020

Crypto Lenders See Explosive Growth Compared to Traditional Banks

Crypto lenders advance crypto-currency denominated loans to borrowers. Unlike traditional banks, they are unencumbered by regulatory, and other constraints. As such, they are making a killing and enjoying a beefier growth compared to brick-and-mortar banks.

crypto lending

What’s Fueling the Crypto Lending Growth?

To fully understand the phenomenon, let’s first step back in time, to the financial crisis. Banks became increasingly risk-averse, and have had to contend with increased regulation.

On the other hand, the U.S. economy only expanded by 2.3 percent in 2019, even after the Federal Reserve cut interest rates three times to stimulate growth. Faced by the double squeeze in regulation and low-interest rates, the banks are at a disadvantage.

Take Genesis, for example. It’s a New York-based trading firm lending cash alongside cryptocurrencies like Bitcoin. Its loan book increased by 21 percent during the fourth quarter of 2019, fueled by demand from Asia and Europe.

In comparison, the biggest bank in the US, JPMorgan, only saw a 2 percent growth in loan balances. That’s less than ten times compared to Genesis.

Crypto Lenders – Expansion at a Glance

The trend is the same among other crypto lenders.

They enjoy the growth, in part because only a few lenders can be found in the digital lending industry. Furthermore, they experience lower competition from established banks who can’t stomach the volatility among cryptocurrencies.

How significant is the growth? Massive by some estimates.

BlockFi, a large crypto lender backed by Winklevoss Capital and Galaxy Digital, indicated earlier that it’s planning to add five to ten new assets to its platform. It also plans to launch a credit card offering rewards in Bitcoin.

Another lender, Celcius Network, said that institutional investors make a significant part of the platform’s loan growth.

Other player are also making a move on the market, providing much needed alternative financing to consumers.

Outlook for the Crypto Lending Industry

It’s not just crypto lenders making inroads into crypto lending. Silvergate, a banking company serving crypto-related businesses, said in a report that it added 48 new digital currency customers during the quarter. Transactions on the Silvergate Exchange Network rose by 17 percent compared to its third-quarter levels.

Silvergate plans to launch a product allowing customers to obtain U.S. dollar-denominated loans backed by Bitcoin.

Moving forward, the industry is poised to grow with new, innovative products and an expanded customer base. Furthermore, banks are also likely to venture deeper into the industry as they seek to diversify their offerings.

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