Not Only Overleveraged BTC Miners But The Halving May Put Some Lenders May Out of Business
The crypto lending firm, BlockFi is now extending credit to miners as the market loses some of its risk appetites because of the coronavirus crisis. “We’re starting to establish relationships with miners for the first time now,” said BlockFi CEO, Zac Prince.
Before this crisis that led the crypto prices to crash and hash rate to decline, the competition was high and competitors were willing to take bigger risks than the company was comfortable with. Prince told Coindesk,
“Two months ago, lots of lenders were accepting miner equipment as collateral, and this isn’t happening anymore. Now, the risk tolerance on the market [has] declined.”
Crypto lenders Nexo and Celsius are still lending to miners but they do not accept mining equipment as collateral. However, not just the miner capitulation but depreciation and physical need to store the equipment make it a risky option. Bitfinex Bitcoin whale Joe007 said,
“Accepting mining equipment as loan collateral is some special kind of stupid.”
“Here I thought that only overleveraged/inefficient miners will go out of business come halving but seems like some hapless lenders will follow them as well.”
With hash rate surging yet again, close to reaching its ATH yet again and an “epic” positive difficulty adjustment coming in next few days with price still around $7,000, miners’ profitability could yet again take a hit especially with halving coming in 25 days. However, popular analyst PlanB known for the Stock-to-Flow model thinks,
“Bitcoin 2020 halving will be like 2012 & 2016. As per S2F model I expect 10x price (order of magnitude, not precise) 1-2 yrs after the halving. Halving will be make-or-break for S2F model.”
Meanwhile, even during the ongoing chaos, BlockFi has had its monthly revenue “more than double” with institutional clients growing as well.
Despite the market turmoil, the crypto lending firm has been seeing continued growth. Starting April 1st, it started offering an increased percent of interest rate on Bitcoin and Ethereum accounts. Those with 5 BTC in their savings account are now earning 6% APY and those with up to 500 ETH have their interest rates rose to 4.5% APY.
The company offers both loans and interest accounts to its users and even during these hard times, they have been able to increase their margins which they then use to improve the interest.
According to Prince, they remained a “source of liquidity” during the volatile weeks that enabled them to withstand the massive sell-off. They actually saw “an increased level of activity and a lot of reshuffling as clients evaluated the market and restructured their assets,” during this time of increased volatility.
The company also announced the addition of a cash-to-crypto onramp on its platform to boost liquidity. Its crypto trading option, added in December, has become quite popular which is growing by “3-5x every month.”
Earlier this year, the company raised $30 million in a funding round led by Peter Theil’s Valar Ventures. Hong Kong-based Three Arrow Capital also joined BlockFi’s list of investors.
The company is now planning to reach out to those who don’t own any crypto as in the backdrop of central banks printing money at unprecedented levels, “bitcoin is a compelling investing story.”
Another company, Grayscale reported record growth in 1Q20, the “strongest” quarter saw 83% of total capital raised in all of 2019 in just one quarter.