While most of the investment base for cryptocurrency continues to reel from 2018’s bear cycle, which saw Bitcoin fall over 60 percent and the altcoin market drop further, crypto lenders and those betting on debt have still managed to come ahead.
Demand is being driven by investors and crypto companies fearful of selling ahead of the next rally, or looking to the current interim of depressed coin prices as a buyer’s opportunity,
Creditors focusing on the crypto arena say they’re finding strong demand from borrowers who don’t want to sell their virtual coins at depressed prices, as well as from big investors eager to borrow coins for short selling. It’s putting lenders on both sides of Bitcoin’s bust: Helping believers pay their bills while awaiting a rebound, and also enabling bets by people who think the drop has further to go.
The Bloomberg report goes on to profile two cryptocurrency lenders, BlockFi and Salt Lending, who have been expanding despite the downward trend in cryptocurrency valuation. BlockFi, which received a $52.5 million investment from Mike Novograt’z Galaxy Digital Ventures, reports seeing its customer base grow 10-fold since June. Aave, the group behind ETHLend, a cryptocurrency lending marketplace, recently opened an office in London with plans to enter the U.S. market in the near future.
While the majority of crypto lenders have been established since 2017, their practices have changed over the last two years with the shift from a bullish to bearish market. Initially, lenders provided a source of cash for investors and crypto-ventures afraid to sell their stockpiling of coins as market prices continued to climb. With the crash in token value that occurred throughout 2018, lenders have now provided a source for currency lending in exchange for cash.
Michael Moro, CEO of Genesis Capital, told Bloomberg in a phone interview that the bear market has helped his industry,
“The bear market has certainly helped — at least has fueled the growth,”
Genesis Capital, which lends coins in exchanges for users depositing U.S. dollars, has already issued $700 million worth of loans since opening in March 2018. It reports having about $140 in outstanding loans lasting an average duration of six weeks.
Moro reports an intention to double his staff in the coming years, and shared some further insight on the profitability of his venture,
“We’ve been profitable from day one,” Moro said. “We’ve certainly proven that there is market demand, that there’s product fit and that it’s time to invest even more in this side of the business.”
The owners and companies profiled in the Bloomberg piece seem to be of the impression that their business is low-risk despite its interaction with the highly volatile cryptocurrency market. In addition, lending companies provide flexibility to investors in both bear and bull markets, allowing crypto stockpilers to hold their coins during upswings in price while also allowing a fast accumulation of coins during periods of depressed pricing.
However, while traditional investors have been disappointed with coin prices in the ongoing bear market, lenders have been able to capitalize.
“Everything flies in the bull market, but true magic happens when it does well in a bear market,” Aave CEO Stani Kulechov said in a phone interview. “The crypto-backed lending model is one of the rarest.”