Over the past few years, Bitcoin and other cryptocurrencies have experienced a surge in both interest and value. This has led to significant returns on investments for those who got in early. Financial institutions are paying attention and are now looking into cryptocurrency lending options, which could radically change how commercial banking works.
The Rapid Growth of the Bitcoin Industry
Bitcoin has been around for more than a decade, and its growth did not occur overnight. In fact, Business Insider estimates that it took almost 11 years per bitcoin coin to reach a whopping $20,000 in 2017 for the first time. In January 2021, the price then doubled twice in less than 30 days.
Heavy investors are driving a big portion of the demand and growing prices. Economists credit MicroStrategy with attracting wealthy investors and corporations when it bought $425 million worth of bitcoins. Since then, several other companies have made multi-million-dollar investments in bitcoin, including Square.
Another big contributor to the increase in demand is that lenders are finally treating Bitcoin as a true asset. Some lenders are now offering crypto-backed loans. To add to this, Elon Musk recently shared that Tesla buyers can now use Bitcoin to close the deal.
Using Bitcoin in Financial Dealings
Financial institutions are coming up with creative ways to help Bitcoin investors make the most of their investment. This makes it a much safer investment than it was even a year or two ago. So, what is crypto lending, and is it worth investing in?
Using Bitcoin for Collateral
When seeking a loan for business or personal uses, having collateral can make all the difference. Asset-backed loans tend to have lower interest rates and more favorable terms than loans with no collateral.
Consequently, treating Bitcoin as an accepted form of collateral opens up a whole new world of possibilities for people who invested heavily in cryptocurrency or saw big rewards.
Using Bitcoin for Peer-to-Peer Lending
Most peer-to-peer lending platforms use traditional currencies for passing money between each other. A peer-to-peer cryptocurrency platform allows people to provide micro-loans to each other and profit from the loan. This will also drastically transform financial possibilities around the world.
Impact of Cryptocurrency on Commercial Lending
As cryptocurrency becomes more popular and more businesses have invested in cryptocurrency, it seems only fitting that they should be allowed to use it for crypto-backed loans. The inclusions of cryptocurrency in commercial lending will continue to feed the cycle of providing credibility to cryptocurrencies, which attracts more demand and drives prices even higher.
Lower International Barriers
When seeking loans overseas, businesses and business owners often face challenges proving the worth of their assets at home. This can make it challenging to leverage assets across international borders to secure loans. However, cryptocurrency operates globally, making it easier for borrowers to seek financial partnerships with crypto-backed lenders anywhere in the world. Even allowing businesses to expand into overseas markets and gain a firm footing.
Reduced Infrastructure Costs
In 2017, Reuters estimated that blockchain could create up to $12 billion in savings each year, cutting infrastructure costs. Using Bitcoin’s underlying technology to deploy financial services, the world’s biggest banks could achieve better transparency, data quality, and in turn, reduce costs by 30%.
Increased Portfolio Diversity
Any good investor or banker knows that a good portfolio is a diversified portfolio. Accepting Bitcoin as collateral allows lenders to diversify the assets they hold and grow. Even when people pay off loans and lenders return the original investment, they still get to keep the returns earned while retaining the assets.
LQD Business Finance Adds Bitcoin to Lending Portfolio
At LQD Business Finance, we take pride in being at the forefront of changes in the financial markets. We recognize that many of our current and future clients hold significant cryptocurrency investments and would like to put these assets to work for their businesses. We launched the development of a business lending platform that uses Bitcoin for commercial loans. Find out more about crypto-backed business loans at LQD Business Finance.