Bitcoin Lending Grew Nearly 12x; Only Accounts for 0.15% of the $20T Total Collateral Market
There is also growing demand for Ether among traditional actors entering crypto lending with ultra-high-net-worth individuals, corporations, traditional hedge funds, and family offices wanting to enter the market looking to generate excess yield on idle cash.
Total active collateral in the Bitcoin lending markets has grown from $1.9 billion in Q3 2019 to a whopping $24.3 billion in Q4 2020, reveals the latest joint report by Arcane Research and crypto exchange Bitstamp.
The crypto lending market is simply flourishing, but it has a long way to go with the collateral markets' current size estimated to be $20 trillion, providing a huge potential for bitcoin as collateral.
Over 400,000 BTC are estimated to be used as collateral for Bitcoin-backed loans today, doubling over the last year, reads the report. It is particularly used to leverage up and buy more crypto for arbitrage, market-making, tax deferment, and the need for fiat and miners covering costs.
The interest rate on Bitcoin deposits is currently high at 6-10%, which is expected to decline as more BTC are collateralized, and the crypto sector grows.
In total, 625,000 BTC, approximately $30 billion, are used as collateral in the crypto market today, based on estimations of collateral held in the derivatives market and tokenized BTC in DeFi. Still, bitcoin collateral only accounts for 0.15% of the total collateral market, which is growing rapidly, states the report.
Arcane Research expects further growth in the BTC lending market, which could be “very bullish” for Bitcoin as it allows users to employ their cryptocurrency to serve their everyday fiat-needs, without requiring the hodlers to sell and realize profits.
Bitcoin, which can be transferred around the world instantly, at almost no cost, is a superb collateral asset because it is without both counterparty risk and credit risk, reads the report.
Institutions are just as interested in the crypto lending market, with institution-focused Genesis seeing a YoY growth of 245% in their outstanding loans.
One of the market-leading companies in the lending market, Genesis has seen incredible growth over the past year. Their outstanding loans surged to $3.8 billion in Q4 of 2020, a roughly 80% growth from Q3.
The company further processed nearly $20 billion on loans last year to institutions only, “showing tremendous demand for traditional actors entering crypto lending.” In Q4, the company also pointed to the inflow of institutional lenders as well with ultra-high-net-worth individuals, corporations, traditional hedge funds, and family offices wanting to enter the market for the first time looking to generate excess yield on idle cash.
But it isn’t only about Bitcoin; there is also growing demand for Ether among institutions. There has been a steady increase in ETH loans outstanding, which grew 177% during the last three quarters of 2020.
Like BTC, this growth was attributable to ETH's price inflation, the biggest reason was tied to in-kind placements in Grayscale's Ethereum Trust, according to Genesis.
BlockFi is another company leading in crypto lending with over $4 billion in outstanding institutional loans. According to the report, BlockFi's internal numbers show that the company is a clear competitor to Genesis on the institutional side.
In 2020, BlockFi processed $18.6 billion in loans to its institutions and private clients, and by the end of the year, it had $4.4 billion in outstanding institutional loans. These clients aren’t just based in the U.S. either, just 60%, but spread across the world — 25% in the Asia-Pacific and the last 15% are based in Europe.
Other notable competitors in this sector are Celsius which processed over $8 billion in loans, Nexo which has over 1 million users and shares profits with its token holders, and Nebeus, which was one of the first movers in 2014.