Graychain Research: Crypto Credit Loan Market Now Worth Over $5 Billion, Likely To Blow Up
The crypto loan market has expanded very rapidly and is likely to blow up in the near future, new research from a blockchain data firm Graychain Limited claims.
According to Bloomberg, the Crypto credit market is now worth about $5 billion. The market started in about two years ago and the number of loan facilities is still growing.
The company says that crypto lending mirrors those of traditional financing which resulted to the global financial crisis in 2008-09. They argue that there are lax lending rules, too much cash in the market with few borrowers as well as enhanced risk-taking. Although the company claims that the volume of credit involved is very small to affect the wider world, it reminds the regulatory authorities that new technologies can still be responsible for financial booms and bust cycles.
Jason Urban, head of DrawBridge Lending in Chicago who also served as a trader at Goldman Sachs Group, explained that his biggest worry was not crypto adoption or regulatory uncertainty but credit risk.
Crypto lending market grew out of nothing in 2018 after the crypto prices went down in 2018. Crypto owners who did not want to sell their holdings at low prices preferred to loaning them to earn interest or gave them out as collateral. Additionally, the business style also allowed traders to borrow cryptos for short selling.
Some crypto lending companies like Genesis were started in this manner to finance bets against Bitcoin. Genesis is one of the largest digital credit providers in the market and has so far given out over $2 billion worth of loans to institutions starting from 2018.
There are worries that the market has expanded very rapidly and could burst out soon. However, there are those who argue that there is no need for alarm bells. One of them is Celsius founder Alex Mashinsky who explained that the loans are given to institutions which follow strong compliance and risk management standards. He explained that crypto lending companies follow stringent standards and barely experience late payments or even losses.
Then, Matthieu Jobbe Duval of CoinList, who is working on their own loan business inside the crypto lending sector, added:
Crypto is still a small market relative to traditional asset classes, however, the feeling of deja-vu is there: lack of regulation, cheap credit available with minimal due-diligence, and broad optimism.