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Bitcoin ETFs and Paybacks Revive Crypto Lending

The crypto lending sector is experiencing a revival following the “crypto winter” that saw the collapse of major players, thanks to the introduction of spot Bitcoin exchange-traded funds and the return of assets to creditors from bankrupt companies.

“What I’m seeing is that this market has come back roaring,” Mauricio Di Bartolomeo, co-founder of crypto lending firm Ledn, told CryptoX at the Consensus 2024 conference in Austin, Texas. “The market never really left; it [just] got scared.”

Crypto lending functions similarly to traditional banking. Customers deposit Bitcoin or other cryptocurrencies with firms like Ledn, earning interest or using the crypto as collateral for loans. The interest paid to depositors is generated by lending their crypto to others at a higher interest rate.

The sector collapsed in 2022 when crypto prices plummeted, leading to bankruptcies of companies like Celsius, BlockFi, and Genesis. Since then, the digital asset market has rebounded. The CryptoX 20 Index has surged over 200% since the end of 2022. The rally gained momentum after BlackRock (NYSE:BLK) and other financial giants successfully applied to create Bitcoin ETFs in the U.S. Di Bartolomeo attributes the renewed interest in crypto lending to the positive outlook surrounding these funds.

“Bitcoin has gone up from $20,000 to $70,000 and has become a focal point in the U.S. political race,” he said. “This increased interest validates Bitcoin as an asset and collateral for lending.”

Ledn processed more than $690 million in loans in the first quarter of this year, its best performance since its inception in 2018. Over 84% of these loans were directed to institutional clients, driven by the demand surge following the approval of Bitcoin ETFs in January. Ledn exclusively processes loans in Bitcoin, Ethereum, and two stablecoins: USDC and USDT.

The institutions involved are primarily market makers from both Wall Street and crypto-native companies. “These firms operate in both the ETF and spot markets,” Di Bartolomeo said. “Some have made their names in crypto, others in traditional finance.”

Another factor driving the resurgence in crypto lending is the return of funds to users from bankrupt firms. Many users, who had their investment thesis validated over time, are returning to the lending market. Di Bartolomeo explained that these “hardcore users” are likely to hold onto their assets and use the lending market to leverage them for borrowing and lending.

“What I’m seeing is undeniable proof that people want to hold their Bitcoin long-term and also want to utilize it,” he said. Traditional financial institutions may not recognize digital assets as collateral for loans, but firms like Ledn bridge this gap for customers.

Surviving the crypto winter, Ledn remained committed to lending and borrowing fundamentals. “Ledn only works with qualified and vetted institutions, avoids asset and liability mismatches, and steers clear of DeFi yield farming,” Di Bartolomeo explained. “If someone lends us Bitcoin,we lend Bitcoin; if someone lends us dollars, we lend dollars. There’s always a taker and always liquidity.”

He added that all lending and borrowing activities are term-matched, ensuring liquidity for the assets. “People called us boring, but we said this is our way: boring, slow, and safe,” he noted.

Featured Image: Freepik

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