Financial institutions are foraying into Bitcoin-backed lending as Bitcoin (BTC) adoption gains steam among investment managers and fiat interest rates tighten, Ledn, a Bitcoin-backed lending platform, told Cointelegraph on Sept. 25.
Institutional investors have poured billions of dollars into spot BTC exchange-traded funds (ETFs) after United States regulators cleared the cryptocurrency funds for trading in January.
“[M]ajor institutions are now going beyond ETFs to focus on Bitcoin-backed lending,” Ledn said.
Ledn processed $1.16 billion in cryptocurrency loans in the first half of 2024, largely on behalf of financial institutions, Ledn said, adding that lenders are typically earning upwards of 10% annual percentage returns (APR).
Ledn offers several cryptocurrency lending products. Source: Ledn
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Interest rates for borrowers range from 11.4% to 13.4%, depending on the type of loan, according to Ledn’s website. With its lower-cost loans, Ledn lends out the Bitcoin collateral itself for additional yield, introducing credit risk for borrowers, the website said.
On Sept 18, the US central bank cut interest rates on short-term Dollar deposits from approximately 5.3% to 4.8%, according to the Federal Reserve Bank of New York.
Bitcoin-backed loans are denominated in fiat currency but collateralized with BTC, which borrowers forfeit if they fail to repay the loan.
The BTC lending market comprises around $8.5 billion in outstanding Bitcoin-backed loans and is on track to grow to approximately $45 billion by 2030, according to HFT Market Intelligence, a market researcher.
Ledn competes with BTC platforms including Arch and Salt. It will soon face off with financial services incumbents such Cantor Fitzgerald, which in July announced plans to launch its own institutional BTC financing platform.
It also indirectly competes with decentralized finance (DeFi) lending protocols such as Aave.
The Bitcoin-backed loan market has benefited from a proliferation of regulated US cryptocurrency custodians, which hold spot BTC on behalf of investors.
In August, Cointelegraph reported that Fireblocks — best known for its self-custody treasury management products — obtained approval from New York’s financial regulator to custody assets for US clients.
Other institutional crypto companies — including Coinbase Custody Trust, Fidelity Digital Asset Services and PayPal Digital — are also similarly licensed.
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