It is no exaggeration to say that:
Bitcoin will lead, the wave of cryptocurrency adoption !!
Since its humble beginnings in 2009, Bitcoin has grown to become a full-fledged ecosystem where users, miners, developers, and business makers co-exist.
But so far Bitcoin has been touted to fit only for this usecase, i.e. ‘store of value’ but there many other usecases that Bitcoin can be used for and that too right now !!
One of them is Bitcoin lending or Bitcoin(BTC) loans.
What Are Bitcoin Loans?
Bitcoin(BTC) loans are simply loans that borrowers can take against their BTC holdings. In BTC loan borrowers need to keep their BTC holdings as collateral for which they get the extra cash they need in USD or some other stablecoin.
So basically, loans drawn over Bitcoin as collateral are called BTC loans and there many Bitcoin lending programs where borrowers can borrow cash for BTC and lenders can earn extra bucks by lending their BTC.
A lender (his/her) can also loan Bitcoin and get into lending Bitcoin via the Bitcoin lending platforms mentioned below :
Top Bitcoin (BTC) Lending Platform & Sites 2020
|Bitcoin Lending Program|
|YouHodler [Recommended]||Get Loan Now|
|BlockFi [For US Customers]||Get Loan Now|
|Celsius||Get Loan Now|
|Salt Lending||Get Loan Now|
#1. YouHodler [Recommended]
YouHodler is a FinTech platform focused on providing crypto-backed loans to end-users with fiat currencies (USD and EUR) and stablecoins etc. They have processed $10+ million in loans to customers around the globe.
The most popular ones are BTC and stablecoin loans. As of now, YouHodler supports BTC, BCH, ETH, LTC, XLM, XRP, DASH, REP and other popular cryptocurrencies and tokens.
At YouHodler, you can get loans up to 30,000 USD in cash-flow now for tenure up to 120 days. The interest rates vary for different currencies but are still the best in the industry.
Also, their Loan-To-Value (LTV) is the highest in industry and using YouHodler you can get loans of up to 90% LTV.
#2. Celsius Network
Another company that lends you dollars for your cryptocurrencies is Celsius Network. Celsius is not only a peer to peer crypto lending company but an endeavor to bring the next $100 million people who aren’t connected to banking yet.
This way investors who have extra crypto and want to earn on those without losing the advantage of holding them can again leverage the Celsius network to earn interest back in cash or coins.
At Celsius, you can expect annual rates from 5% to 12% depending upon your collateral and can get loans up to tenure of 1 year at an LTV of up to 50%.
BlockFi is one of the pioneer companies to raise institutional funding for their Bitcoin backed loan start-up. At BlockFi you can borrow from $2000 to $100 million at an LTV up to 50%. The annual rate of interest differs for how much duration one is borrowing, but their lowest starting interest rate is 4.5 % APR.
To be able to use BlockFi you need to have atleast $4000 or more in crypto, and currently, BlockFi is available throughout the US except (NV, SD, VT or HI).
If you have extra BTCs with you, you can lend them out and earn interest on them using BlockFi.
#5. Salt Lending
Salt Lending touts crypto holders to HODL their crypto and spends their cash. Its main focus is crypto lending along with other popular crypto assets (digital assets).
Through Salt Lending you can get loans from $5000 to $100 million depending upon how much collateral you can put in. The loan APRs start here from 5.99%, and you can get an LTV of 30% to 50% on cryptocurrency loans.
How does Bitcoin Loan work?
BTC loans work similarly to all the other crypto loans.
You can even compare BTC loans with HELOC loans. Heloc loans are home equity line of credit loans where one needs to keep their home as collateral to get the credit line.
But in case of BTC loans, one first needs to keep bitcoins as collateral.
Once that is done, based on the LTV ratio and the value amount in collateral, the borrower has issued a line of credit in USD or a stable coin that he/she can use for other investments or repayment of other expenses.
This provides the borrower the access to extra money without having to give up the advantage of HODLing their bitcoins.
How & Where To Get BTC Loans?
It is 2019, and it is more than easy to get BTC loans.
To get BTC loans, you need not go through heavy documentation, KYC checks or credit history checks that a borrower usually goes through in traditional lending & borrowing with fiat currency.
Instead, for BTC loans, you need to submit minimum documents for your identity check, and you need to have bitcoins that you are willing to collateralize.
Usually, this process only takes a few minutes, and your application of a BTC loan is done. After which in a day or two max, your application is reviewed.
Upon review and underwriting, your loan is originated within 45-90 minutes.
So, you see how simple the process is.
But where does this all happen?
Well, all this process of getting a BTC loan is applicable for all the sites that we have mentioned in the previous section.
Through these platforms, you can quickly get BTC loans by following this simple process, which is more or less similar for all the BTC loaning sites.
But first and foremost, the loan amount or value of loan will depend upon the current value of crypto assets (digital assets) anyone is keeping as collateral.
Why Take A Bitcoin Loan?
Many Bitcoin investors are here for the long term, and they believe in slowly accumulating as many bitcoins as possible.
But despite their long term vision these investors also need liquidity for various other needs such as for vacation, repayment of a loan, or to buy a car, etc.
In such cases, if they sell their bitcoins, they will lose their competitive advantage of holding BTC for the long term !!
Enter, Bitcoin loans to resolve this…
Bitcoin loans resolve this dilemma of BTC holders who want liquidity without selling their BTC positions. That’s why it makes more sense for BTC investors to borrow extra cash for their BTC holdings instead of selling them outright.
Moreover, Bitcoin and cryptocurrency lending of other digital currency will become more than obvious in the coming days because financial usecases such as lending, borrowing, insurance, savings accounts like the normal bank account, etc. make more sense if done through blockchain-based cryptocurrencies.
Lastly, you get BTC loans in your Bitcoin wallet which you control whereas in traditional lending you get your loan amount in your bank account which bank controls.
How Does Bitcoin lending work?
There is an opportunity cost for everything in the world.
When you buy and decide to HODL Bitcoin, there is an opportunity cost involved.
Let say you bought 1 BTC for $3000 and now when you HODL it you are holding 1 BTC which otherwise could have been invested somewhere more to earn interest on it to make it 1.1 BTC.
But some would argue that there are things like crypto trading to make your investment grow from 1 BTC to 1.1 BTC or more…
Yes, of course, there are, but not all are comfortable and used to trading crypto.
Enter Bitcoin lending !!
Everyone knows about lending, and the same concept of lending if applied to Bitcoin makes it as Bitcoin lending. Moreover, in this type of lending, you have your underlying Bitcoin as collateral.
In simpler terms when someone lends their USD or EUR or stablecoins to a borrower on an agreed rate of interest for an agreed duration against their Bitcoin collateral, this is Bitcoin lending.
Similarly, when someone borrows extra cryptocurrencies or USD or stablecoins against their cryptocurrency holdings, it is called Bitcoin borrowing.
Now that you know the introductory part of Bitcoin borrowing and lending let’s dwell into how Bitcoin lending works !!
Enter Bitcoin Lending
The working of Bitcoin lending is quite straightforward.
The borrower needs to collateralized his/her cryptocurrencies (Bitcoin) as collateral and as per the agreed rate, duration, and LTV, he/she is issued the crypto loan.
For the lenders also it quite easy as they need to decide to lock-up their funds for the agreed duration of lending as per the agreed rates. This enables them to earn extra interest on their capital that they were just holding previously.
Moreover, there are no rigorous KYC checks or credit history inquiries that undergo before carrying on Bitcoin lending. This is precisely because the Bitcoin loans are already overcollateralized as well as the borrowers don’t have a single source of truth that can act as a reliable credit history source.
And when it comes to Bitcoin lending, the process is similar to lending/borrowing any other cryptocurrency. But since Bitcoin is the pioneer cryptocurrency much of the crypto lending market exists around it.
Plus there are better lending/borrowing rates and better LTVs available while using Bitcoin. Moreover, the custodial storage infrastructure is much robust and readily available for Bitcoin in comparison to other cryptocurrencies.
Now, that you know how the Bitcoin lending cycle works, it is indeed imperative to understand the working of Bitcoin lending platforms which facilitate this lending.
So let’s dive into it:
How Do Bitcoin Lending Platforms Work?
Almost, all Bitcoin lending services work similarly except a few processes that they might follow in-house. But if we generalize, here is a brief insight into their workings:
#1. Of course, first, you need to register with the Bitcoin lending platform using your email.
#2. Then you need to complete their KYC process by submitting relevant photo ID proofs.
#3. Once your KYC is complete, tell them about your loan requirements and submit an application.
#4. Receive a loan decision within 24 hours including the LTV you are eligible for and the rate of interest you will be required to pay.
#5. Now, you can send your Bitcoin to their safe custodial solution.
#6. Once the Bitcoins are settled on the blockchain, you will receive the promised loan amount in your bank account or stablecoins withing 90 minutes.
#7. Keep paying the interest-only payments monthly and pay the principal altogether in the end. Some companies like Nexo, don’t require you to pay the interest also in the beginning and you get the option to pay the whole amount back in the end too.
This is how typically the lending process works inside a Bitcoin lending platform. For more example, see this short video of Nexo lending, where it explains the Bitcoin lending process in three simple steps:
Moreover, these lending platforms are also giving 6-7% interest on deposits that you make with these platforms. For example, Nexo is offering 6.5% interest on the stablecoins that investors deposit with them. The eligible deposit stablecoins are DAI, PAX, USDC, USDT & TUSD.
On the other hand, BlockFi is offering, BlockFi Interest Account (BIA) which is interest-bearing savings account for Bitcoin lenders. You just need to store your BTC or ETH with BlockFi to earn 6.2% compounding annual interest rate on your deposit that you will receive monthly.
Bitcoin Lending Regulations
When it comes to regulatory talks around Bitcoin, the situation becomes a bit tricky.
As of now the regulation around Bitcoin is highly fractured and fragmented across the globe and for Bitcoin lending services it is no different.
Many of the Bitcoin lending services are operating only in one or two jurisdictions where there is some regulatory clarity.
For example, BlockFi is operating in 45 states in the USA and is compliant with both the federal and state-level guidelines. Another big player in the Bitcoin lending space, i.e., Nexo claims to be regulated by SEC because they have their native security token. Also, they have different legal entities in different countries as it services 200+ jurisdictions across the globe.
For the rest companies also they are operating in their small arena untill the regulatory framework is set on a global scale.
Country Wise Scenario of Bitcoin Lending
- Bitcoin Lending In The United States (US)
In the U.S., lending is regulated on the state level for non-banks and fintech companies. This regulation is similar to the MSB state-by-state approach used by Bitcoin exchanges. So any crypto lending company which aims to do Bitcoin lending must adhere to this.
- Bitcoin Lending In The UK
Bitcoin lending companies are mushrooming in the UK too and just like crypto exchanges need to comply and obtain a license for FCA, Bitcoin lending companies need to comply with the FCA
- Bitcoin Lending In South Africa
Bitcoin lending is unregulated in South Africa, but Bitcoin itself is allowed. Of course, there are other taxes such as capital gain taxes on Bitcoin in South Africa.
- Bitcoin Lending In India
India is relatively backward in terms of cryptocurrency regulations. In 2018, the RBI severed the relationship between banks and crypto businesses which has led to chaos in the cryptosphere of India. Regarding the lending of cryptocurrencies like Bitcoin too, there is no clarity in the Indian ecosystem. However, you will find some Indian exchanges dealing with margin lending and trading.
- Bitcoin Lending In Australia
Bitcoin lending in Australia is regulated. For example, Helio Lending is a licensed and regulated cryptocurrency lender, based in Australia. This lending service provides holders of Bitcoin a safe and secure way to access fiat funds, without selling any of their Bitcoin. Helio Lending issues loans under an Australian Credit License (ACL #391330).
- Bitcoin Lending In Canada
Canada has been particularly generous towards Bitcoin-like cryptocurrencies, and that’s why you will find Bitcoin lending services like Ledn operating from Canada.
Bitcoin Lending Risks
Bitcoin lending has many risks to start with but they dwarf the advantages, and that’s the reason you have many companies starting-up in this space.
But the main risk of Bitcoin lending is about custody.
There are not many reliable custodial solutions for safely storing Bitcoin and moreover giving someone the custody of your Bitcoin is quite counter-intuitive to many because this goes against the whole ethos of ‘your keys, your coins.’
But anyway, I see it this is the major risk as of now in the Bitcoin lending space.
Bitcoin Lending Challenges
Apart from custody, there are many other challenges that Bitcoin lending industry need to address before it can think to go for mainstream adoption. Some of these challenges are:
- Regulatory Unclarity: There is no single international body or regulatory framework to treat cryptocurrencies like Bitcoin. That’s the reason that many lending services are acting in their fractured way in their native jurisdictions.
- Blockchain Is Immature: The blockchain infrastructure is still immature to inculcate a complex business like lending and borrowing. We don’t know who is writing these smart contracts and what’s their authenticity and reliability.
- Volatility: Cryptocurrencies are wildly volatile and the time it takes Bitcoin collateral to change address is enough to move markets 10-20%. This can result in margin calls to the borrowers who have borrowed money by keeping their cryptocurrencies as collateral. And in drastic volatility, the borrower will be expected to increase the collateral or liquidate some of his/her collateral to rebalance the loan. This can result in an unpleasant experience for the borrower who never wanted to sell his/her bitcoins for a loan.
So these are some of the challenges and risks that I perceive that Bitcoin lending space might face in the coming days. Having said that, Bitcoin lending will someday become the predominant form of lending because this is natively peer-to-peer.
Moreover, Bitcoin lending gives credit access to billions of people who don’t have decent credit scores or history with credit bureaus.
So that’s all from our side in this introductory round-up of Bitcoin backed loans sites and how you can take Bitcoin loans? Also, check out our recommended best cryptocurrency lending platforms, if you wish to borrow/lend against any other digital currency than Bitcoin.
Share this article with your friends who are interested in Bitcoin loans !!
- Top Bitcoin (BTC) Lending Platform & Sites 2020
- #1. YouHodler [Recommended]
- #2. Celsius Network
- #3. BlockFi
- #5. Salt Lending
- How does Bitcoin Loan work?
- How & Where To Get BTC Loans?
- Why Take A Bitcoin Loan?
- How Does Bitcoin lending work?
- Enter Bitcoin Lending
- How Do Bitcoin Lending Platforms Work?
- Bitcoin Lending Regulations
- Country Wise Scenario of Bitcoin Lending
- Bitcoin Lending Risks
- Bitcoin Lending Challenges