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
“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.
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.
To be sure, offering loans against cryptocurrencies is not new. US investment firm Equities First based in Indianapolis have been offering a cryptocurrency-lending service in Hong Kong as well for the past few years. The firm is a dedicated provider of asset-backed financing to borrowers with stock holdings, before its foray into crypto lending.
In recent years, however, more US financial institutions have jumped onto the bandwagon. Fidelity Digital Assets, a unit under global asset manager Fidelity International, started offering a cryptocurrency lending service in December.
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Fidelity Digital Assets’ foray into bitcoin lending is done through a partnership with Blockfi, a US cryptocurrency lending platform.
According to Blockfi’s website, it offers US dollar loans against bitcoin at a loan-to-value ratio of 50 per cent. One bitcoin pledged as collateral could back up a US$22,600 loan for a 12-month term. Its annual percentage loan rate can be “as low as 4.5 per cent.” Bitcoin traded at about US$45,300 on Friday.
“We continue to see demand for increased capital efficiency from institutions that maintain long bitcoin positions,” said Christine Sandler, head of sales and marketing at Fidelity Digital Assets in a press release. “Our customers seeking that efficiency can access more opportunity with the capital that they trust us to keep safe”.