Crypto lending is making a big comeback after nearly collapsing in the last bear market. A new group of lenders ranging from big banks to crypto companies are jumping in to meet the never-ending demand for loans.
Many crypto firms need cash to trade, invest, or simply stay afloat, and lenders are ready to provide it.
According to Bloomberg report, Cantor Fitzgerald, a well-known financial firm, is leading this game with a massive $2 billion for Bitcoin financing. Blockstream Corp. has secured a multi-billion-dollar investment for its lending funds, and Xapo Bank is now offering Bitcoin-backed loans of up to $1 million.
“The new lenders will be much more institutional in nature,” said David Mercer, CEO of LMAX Group. He believes more banks will start lending to big players in the crypto market. This is a big shift from just a few years ago when crypto-native lenders like Genesis Global Capital, Celsius Network, and BlockFi dominated the space.
Those companies handed out huge loans often without enough collateral, and got burned when crypto prices crashed. Many went bankrupt, leaving traders and brokers scrambling for cash.
This time, lenders are being more careful. Instead of handing out risky loans, they’re asking borrowers to put down more collateral. “There haven’t been a lot of people willing to give leverage,” said Rob Hadick, general partner at Dragonfly.
He explained that managing risk in crypto lending is still a big challenge. Traditional banks have been slow to enter the space because crypto prices swing wildly, making Bitcoin-backed loans risky. In their absence, crypto exchanges and brokers have stepped in to provide liquidity.
Moreover, regulation has also played a role in this comeback. The strict policies under President Joe Biden made it tough for lenders to operate. However, Donald Trump’s support for crypto has encouraged more traditional lenders to get involved. “We have seen excitement from more traditional lenders as they have gotten more comfort from the current administration,” said Hadick.
Still, even though the demand for loans is strong, some experts remain skeptical. Austin Campbell, an adjunct professor at NYU’s Stern School of Business, doesn’t believe crypto firms can master lending overnight. “I remain skeptical crypto natives can spontaneously invent hundreds of years of credit lessons,” he said.
