Crypto-backed loans: A $50 billion opportunity in bridging finance


crypto bridging loans

The latest form of equity release taking the bridging industry by storm is the crypto-backed loan. Unlike traditional bridging loans, borrowers do not need to have property, equity or even diamonds to secure their capital. Today’s modern bridging client can simply borrow on the contents of their crypto-wallet. Right now, the trend is just beginning to catch on, but it’s just a matter of time before the crypto-backed loan becomes bridging mainstream.

Crypto gains respect

Once synonymous with drug dealers and sketchy characters, the cryptocurrency road has been a rambunctious one. In 2013, the dark market Silk Road[1] was seized and closed by the FBI, for hosting money laundering and illegal drug transactions. It’s means of currency was of course, Bitcoin, giving the digital dinero some seriously bad press right from it’s origins.

But cryptocurrency has since enjoyed a dramatic make-over, becoming manically mainstream in less than a decade. In the words of the May 8th edition of The Economist[2], “Bitcoin has gone from being an obsession of anarchists to a $1 trillion asset class that many fund managers insist belongs in any balanced portfolio”.

A recent survey found a compelling 97%[3] of the 60,000 retail and institutional investors interviewed have faith in currencies such as Bitcoin and Ethereum. From the bad-kid of finance to the wise and omnipotent asset, crypto secured the kind of image change Russell Brand could only dream of.

Central banks want in which is good news for lenders

The key characteristic of having no central bank can be both a blessing and a curse, as crypto valuations rocket and plunge wildly in short periods. This could deter lenders. After all, the last thing you’d want is for the asset behind your loan to become worthless overnight.

Yet, this might not be a problem for much longer. Firstly because – no thanks to Mr Musk – currencies such as Bitcoin are gradually becoming less volatile. Research from Bloomberg in February 2021[4] reveals that price swings are significantly smaller than those of 2017, while the price is gradually creeping higher. Bitcoin and Ethereum are now mainstream, making them less susceptible to the whims of a few people. And secondly because the central banks want in.

Over 50 monetary authorities – which combined represent the majority of the world’s GDP – are now looking into creating their own cryptocurrencies[5]. Referred to by The Economist as “GovCoins”, and the UK Government as “BritCoin”, it marks a landmark in the fintech evolution.

Some governments are more advanced than others. Crypto is old news for The Bahamas, who have already issued digital currency and are currently enjoying the perks. Meanwhile China, the US and the EU are launching their own task forces and pilot schemes.

Ordinary people are buying cryptocurrencies

It’s estimated that word “Bitcoin” surfaces in a social media post once every three seconds. Think of that. Bitcoin. Count to three. Bitcoin. The world is talking about it, relentlessly. Young people trust it sometimes more than fiat money.

Ground-breaking research from Gemini[6] predicts that 19.3 million adults are on the cusp of entering the crypto-market. What’s more, the crypto-curious are not the current stereotypical white man, aged 37 with an annual salary of $111,000. To start, over half of new market entrants will be women, with a slightly lower income and an average age of 44. Crypto is appealing to more mature audiences – the kind of people who might be looking to renovate a home. And that’s just in the U.S.

Purchasing property with Bitcoin

Worldwide, more than 15,000[7] companies accept Bitcoin as a payment, including 13 major national corporations. From coffee shops to electric cars, people are opening a much more digital kind of wallet.

Property has also been bought and sold in this way too. In 2014, a Lake Tahoe property sold for $1.6 million worth of Bitcoin (2,739 coins)[8]. And today, dedicated websites such as Bithome help people buy real estate using the cryptocurrency. Crypto-backed lending is surely the next big trend hovering around the corner.

Lending money against cryptocurrencies

At the time of writing, such lenders are few and far between. But that’s about to change, a digital wind of change is about to breeze through. One of the most prominent crypto-backed lenders to date is Salt Lending, which stands for Secured Automated Lending Technology. Founded in 2016, this savvy firm lets crypto-owners borrow against their assets in 11 different countries. Plus, they specifically name-drop home renovations as a motivation for personal loans.

Another is Platinum Global Bridging Finance, who provide similar equity-release options for crypto currencies. And Neubus, who built their core offerings solely around crypto-based assets.

According to the Crypto Credit Report 2020[9], the total lending volume against crypto assets increased tenfold over 2020, sharply rising beyond $15 billion. What’s more, it’s expected to grow in popularity. Experts point to a possible surge of over $50 billion within the next years[10].

Bridging lenders looking to future-proof their income should consider driving the bandwagon, rather than jumping on it. The crypto-backed lending market is still in it’s infancy, with plenty of room for dominant players to join.

If I was leading a bridging firm – which, albeit I’m not – I would be rattling compliance teams, shaking up in-house policies and doing whatever needs to be done to get crypto-backed underwriting facilities in place. After all, $50 billion is a lot of money to walk away from.

[1] Source: Investopedia

[2] Source: The Economist

[3] Source: Binance Research

[4] Source: Bloomberg

[5]Source: The Economist

[6] Source: Gemini

[7] Source: Fundera

[8] Source: CNBC

[9] Source: Credmark

[10] Source: Crypto Curry Club