Cryptocurrency prices have been battered this year, and that’s been the sole topic of interest, both for the enthusiasts and the skeptics. However, as the prices dropped, one business has boomed: crypto lending. While all the other startups in the crypto space were counting on prices hitting their former highs, this industry has been making money both with the drops and the rises. In fact, some of the titans in the industry have revealed that the bear market in 2018 only accelerated growth in their industry.
And while some firms such as Bitmain and Consensys have been cutting down costs and laying off staff, crypto lenders have been expanding. Some like the Novogratz-backed BlockFi have seen a 1,000 percent increase in the number of clients. Others like Aave have opened new offices globally to cater to a rapidly-expanding market base.
The New Crypto Gold Mine
While everyone else focused on the skyrocketing prices of cryptos in 2017, a few entrepreneurs recognized a unique opportunity. In 2017, investors in digital currencies were riding on a wave of utopia. They believed the assets would keep rising and were thus hesitant to sell their crypto stashes. This gave birth to the crypto lending industry. The lenders gave the investors an opportunity to receive fiat money, with their cryptos acting as collateral.
Then came the bear market of 2018. The lenders had to adapt to stay in business, and adapt they did. The lenders now began lending cryptos and collecting fiat. Their biggest clients have been traders who engage in day-trading.
One company that has thrived in 2018 is New York-based BlockFi. The startup is backed by Mike Novogratz, online finance unicorn SoFi, Ethereum incubator Consensys and Morgan Creek among others. The firm lends out fiat for crypto collateral, but it requires a large buffer to secure a loan. To secure a $2,000 loan, which is the minimum, you require to deposit 1.09 bitcoins. At the current rate, that’s worth about $4,250. The CEO, Zac Prince told Bloomberg that the client base has grown ten times in the second half of the year 2018.
How does the company protect itself against losses from the volatile assets, you ask. Well, when the collateral placed falls by more than 35 percent, the firm warns its clients that their assets could be sold off soon if the prices fall further. The client can decide to authorize for the selling or he can add on to the collateral to save it from liquidation.
Grateful for the Bear Market
Another company that has experienced incredible growth is Genesis Capital. The firm is an affiliate of over-the-counter trading giant Genesis Trading, which is in turn owned by the Digital Currency Group.
According to the firm’s CEO Michael Moro, the 2018 bear market has been a blessing, He stated:
The bear market has certainly helped — at least has fueled the growth. […] We’ve been profitable from day one. We’ve certainly proven that there is market demand, that there’s product fit and that it’s time to invest even more in this side of the business.
Having been founded in March, the firm’s growth has been phenomenal. It accepts fiat and lends digital currencies, from Bitcoin and XRP to Zcash and Litecoin. The annual rate stands at 12 percent. Genesis caters primarily to institutional borrowers.
In its 9 months of existence, the firm has issued over $700 million in crypto loans. Of this, about $550 million has been paid back, with the average borrower repaying his loan in six weeks. Moro revealed that the firm will double its workforce in 2019, a testament to the great growth expected in the industry this year.