A few years ago cryptocurrency did not cost a dime. One day it had skyrocketed and people, who had bought it beforehand had the only way to make fortune out of it — to sell it. But none of them were prepared for it.
Some lenders propose the new option: using virtual currency as a collateral. However, traditional banking institutions do not accept this type of collateral. But some startuppers, like EthLend and Nebeus, do it. Some lend directly, and some help find a loan from third parties.
In comparison with traditional loans, loans with cryptocurrency as collateral can be burdensome. But in perspective this market is immense.
As of today, the most well-known and profitable virtual currency Bitcoin costs $17.000. The value of its total market is $300 billion. Near 40% of it is owned by approximately 1.000 users. Many of them are digital millionaires, who are eager to purchase houses, yachts and other luxury items.
Roger Ver, known publicly as „Bitcoin Jesus” and one of the biggest holders of this cryptocurrency reports, that he would have liked to take a loan with Bitcoin as collateral, but had not found the appropriate service yet.
The main problem is that the cost of bitcoins is constantly staggering and it is insecure for lenders to hold. The loan terms can be excessive as well.
The chief financial officer of SALT (Secure Automated Lending Technology) Davis Lencher informs, that if you want to get a loan worth $10 000, you should put up $20 000 of bitcoin as collateral and pay between 12 and 20 percent interest rate per annul.
This interest rate coincides with the ones for unsecured personal loans. In opposition to them, bitcoins give an opportunity to borrow much more. Some reported, that this proposition especially kindles the interest of miners. Their computers get new coins solving math problems and support the process of the transaction.
To continue working, they should pay for electricity and hardware. But they want to preserve their cryptocurrency without selling it. Bitcoin startups also require additional money to pay their employees.
Nebeus, the startup based in London, helps lenders propose loans, that can be returned with bitcoin or another virtual currency: on the very first day the company has arranged 100 loans.
The aim of Salt Lending startup when proposing loans is to help banks as well. Within weeks they propose this type of loan to quite a few financial institutions and hope that minimum one will agree to cooperate.
There are firms that need another type of collateral as well. The terms can comprise asking borrowers to post more bitcoin in case of the decrease in price. It resembles the margin, that exchanges of the virtual currency propose to their customers to increase their trading bets.
Some lenders think about using the blockchain in order to facilitate the lending process. The main concept is about stitching terms into a ledger to make the loan and its collection automatic. If they make much headway, debt investors will get more favorable repayment and it will create some problems for peer-to-peer lenders, like Prospect Marketplace.
Lucas Nuzzi, a senior analyst at Digital Asset Research, realizes it will be a fundamental change for credit markets, but confesses that they have only started launching this innovation. There are no companies, that can facilitate this system at their own bent.
As of today, the banks are not eager to accept virtual currency as collateral. Some of them just cannot preserve bitcoin in a secure way. A balance sheet is also not adapted for accounting for it.
When it gets comfortable for banks to trade cryptocurrencies, they will start taking bitcoin as collateral. It will probably happen in two or three years.
P.S.: Before you decide to deal with this cryptocurrency, read pros and cons of bitcoin.