BitGo, one of the largest and longest-standing custodians of digital assets, joins the fast-growing business of lending bitcoins and other cryptocurrencies to large investors. The Palo Alto-based company announced Thursday that it now offers institutional digital asset lending services.
Founded in 2013 by CEO Mike Belshe, BitGo started testing the new service a few months ago with large investors and has already accumulated about $ 150 million in open loans, according to Nick Carni, a former Deutsche Bank executive. who oversees the effort as BitGo. chief financial officer. The new service initially targets existing BitGo custody customers, the company said in a statement.
BitGo is currently lending bitcoin, ether, litecoin and stablecoins, Carni said in an interview. The company will also lend government-issued currencies, including U.S. dollars, to investors who deposit cryptocurrencies as collateral.
With the major banks still bypassing the 11-year-old digital asset sector most of the time, a new breed of lender is stepping into the void to meet demand, in part from investors seeking to boost returns on their bets on cryptocurrencies, through the use of leverage.
The business model of cryptocurrency lenders works much like that of traditional banks: take the assets of depositors, pay them interest, and then lend at a higher interest rate. The lender can seize the security to repay the loan if the borrower defaults.
“I manage an assorted spread and make a profit on this,” said Carni. “It is no different from the way banks do it.”
BitGo’s new push comes from the fact that cryptocurrency lenders have grown dramatically compared to traditional banks.
New York-based Genesis Trading owned by crypto-focused investment company Digital Currency Group said in January its loan portfolio increased 21% in the fourth quarter to $ 545 million, due to demand from large investors and small loan aggregators in Asia and Europe. This growth was more than 10 times greater than that of JPMorgan, the largest American bank in New York, where loan balances increased by 2%, which roughly corresponds to the expansion of the economy in its together.
Digital Currency Group, which owns CoinDesk, is an investor in BitGo. Other funders include Wall Street firm Goldman Sachs and crypto-focused investor Galaxy Digital Ventures, led by former hedge fund executive and Goldman partner Mike Novogratz.
So far, said Carni, the vast majority of BitGo’s loans are denominated in bitcoins – similar to the domination of the oldest cryptocurrency in the digital asset markets.
According to BitGo’s website, Belshe launched the business after serving in the early 2010s as a depository for himself and other tech investors by securing digital coins on an offline laptop hidden under his couch . In an industry laden with reports of scams, hacks and regulatory missteps, the preservation of cryptocurrency assets has become a key priority for large investors keen to take the risks in exchange for disproportionate profits by betting on the market. notoriously volatile.
Bitcoin prices almost doubled in 2019 and have increased 22% so far this year. Such a performance contrasts with the Standard & Poor’s 500 index, the benchmark for large American equities, which fell 4.3% in 2020 amid fears linked to coronaviruses after having increased by 29% last year.
Last month, BitGo announced plans to purchase the blockchain-focused two-year-old startup Harbor better known for its failed efforts in 2019 to symbolize $ 20 million in shares in a high-rise building in Carolina from South.
Belshe said in Thursday’s statement that “we are merging the best of Wall Street’s sophisticated understanding of how to work with institutional investors and the best of Silicon Valley technology and innovation.”
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