Bitcoin-backed lending gains momentum among institutions

Financial institutions are increasingly venturing into Bitcoin-backed (CRYPTO:BTC) lending as adoption of Bitcoin continues to rise among investment managers and as fiat interest rates decline, according to Ledn, a Bitcoin-backed lending platform.

The platform reported on September 25 that significant institutional investment has flowed into spot Bitcoin exchange-traded funds (ETFs) since regulators cleared these funds for trading in January.  

Ledn noted, “Major institutions are now going beyond ETFs to focus on Bitcoin-backed lending.”  

In the first half of 2024, Ledn facilitated $1.16 billion in cryptocurrency loans, primarily for financial institutions, with lenders earning annual percentage returns exceeding 10%.  

Interest rates for borrowers range from 11.4% to 13.4%, depending on the loan type.  

Ledn’s model allows for lower-cost loans by lending out the Bitcoin collateral for additional yield, which introduces credit risk for borrowers.  

Following a recent interest rate cut by the U.S. central bank, which lowered short-term Dollar deposit rates from approximately 5.3% to 4.8%, the market for Bitcoin-backed loans is becoming more attractive.  

These loans are denominated in fiat currency but collateralized with Bitcoin, which borrowers risk losing if they fail to repay.  

The Bitcoin-backed loan market currently stands at around $8.5 billion and is projected to grow to approximately $45 billion by 2030, according to HFT Market Intelligence.  

Ledn faces competition from other Bitcoin platforms, including Arch and Salt, as well as from established financial services like Cantor Fitzgerald, which plans to launch its own institutional Bitcoin financing platform.  

The market is also influenced by the increasing number of regulated U.S. cryptocurrency custodians, such as Fireblocks and Coinbase Custody Trust, which hold Bitcoin on behalf of investors.  

At the time of reporting, the Bitcoin price was $63,207.67.