Bitcoin’s appeal grows as more investment platforms facilitate dollar loans backed by cryptocurrencies

As bitcoin surges over the past year, some service exchanges see value of easing cryptocurrencies as collateral for loans

Move comes as more US investment firms such as Fidelity Digital Assets enter the fray, Tesla toys with bitcoin as payment option for its cars

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Bitcoin for loans? Diginex and Fidelity Digital Assets are facilitating loans backed by cryptocurrencies. Photo: Handout

Published: 1:35pm, 28 Feb 2021Updated: 7:25pm, 28 Feb 2021

More investment firms are giving bitcoin investors an extra avenue to raise cash from their digital assets by accepting cryptocurrencies as collateral for US dollar loans for a fee.

Diginex, a Nasdaq-listed fintech firm which runs a cryptocurrency exchange that is licensed in Singapore, plans to offer cryptocurrency borrowing and lending services to its clients from next month to capture demand from institutional traders. The service could appeal to investors with a bearish view on the US currency, chief executive Richard Byworth said.

“An investor trading crypto-derivatives on our platform can borrow US dollar from us against bitcoin, which is put into our custody facility as collateral,” Byworth said in Hong Kong. “If one sees the dollar value weakening against the bitcoin, that could be a better way to spend the fiat currency today than at a future date.”

The Dollar Index has dropped 7.4 per cent against major peers over the past 12 months, according to Bloomberg data. The yuan, for example, strengthened 8.4 per cent against the US currency in the same period. Bitcoin, meanwhile, has more than quintupled at the same time, lifting its capitalisation above US biggest bank JPMorgan Chase.

Nasdaq-listed Diginex chief executive Richard Byworth sees multiple use cases for borrowing against bitcoin. Photo: K. Y. Cheng

With almost 90 per cent of its 21 million coins already mined, Wall Street banks and US corporates are increasingly dabbling into the currency as evident by Tesla’s recent US$1.5 billion bet on bitcoin.

Diginex also allows traders to borrow bitcoin for short-selling purposes as part of a hedging strategy. The lender, who could be another trader on Diginex’s platform, gets paid a fee. Byworth expects the first such trade to be transacted next month.