Bitcoin ETFs, $690M Loans Drive Crypto Lending Revival

Key Takeaway

• Crypto lending is rebounding, driven by Bitcoin ETFs and creditors recovering assets from bankrupt firms, with Ledn processing $690 million in Q1 loans.
• Bitcoin's price surge from $20,000 to $70,000 and its political prominence in the U.S. have renewed interest in crypto lending.
• Ledn's conservative approach—working only with vetted institutions and avoiding DeFi yield farming—helped it survive the 2022 crypto downturn.

Crypto Lending Market Rebounds

The crypto lending sector is experiencing a robust recovery following the tumultuous crypto winter that saw several major players collapse. The resurgence is largely attributed to the approval of spot Bitcoin (BTC) exchange-traded funds (ETFs) and the return of assets to creditors from bankrupt companies. Mauricio Di Bartolomeo, co-founder of crypto lending firm Ledn, highlighted this revival during an interview at the Consensus 2024 conference in Austin, Texas. "What I'm seeing is that this market has come back roaring," Di Bartolomeo stated. "The market never really left; it [just] got scared."

Crypto lending operates similarly to traditional banking, where customers deposit Bitcoin or other cryptocurrencies to earn interest or use them as collateral for loans. The sector faced a significant downturn in 2022, with firms like Celsius, BlockFi, and Genesis filing for bankruptcy as crypto prices plummeted. However, the digital assets sector has since rebounded, with the CoinDesk 20 Index up more than 200% since the end of 2022. The rally gained momentum late last year after BlackRock and other financial giants successfully applied to create Bitcoin ETFs in the U.S.

Institutional Demand Surges

Ledn has seen a substantial increase in demand, processing over $690 million in loans in the first quarter of 2024, marking its most successful quarter since its inception in 2018. More than 84% of these loans were directed to institutional clients, driven by the approval of Bitcoin ETFs in January. Di Bartolomeo noted that the institutions involved are primarily market makers from both Wall Street and crypto-native companies. "These are the firms that are operating in the ETF markets as well as spot," he said. "Some have made their names in crypto, some in TradFi."

The return of assets to creditors from bankrupt firms has also contributed to the resurgence in the lending market. Di Bartolomeo explained that many users, whose investment thesis revolves around long-term holding for wealth appreciation, are now returning to the market as they regain their assets. These users, he said, were "kneecapped" by bad actors but are now leveraging their assets for borrowing and lending.

Market Stability and Future Outlook

The crypto market experienced a $400 million leverage flush out on Friday, leading to a decline in open interest and trading volumes. Bitcoin (BTC) and Ether (ETH) remained relatively stable over the weekend, with BTC trading just over $69,400 and ETH around $3,660. Analysts at Presto Research anticipate market volatility to return in the coming week, driven by macroeconomic catalysts such as the Consumer Price Index (CPI) release, the Federal Open Market Committee (FOMC) meeting, and a speech by Janet Yellen.

The stronger-than-expected non-farm payrolls (NFP) figures, which showed the U.S. economy adding 275,000 jobs compared to the expected 185,000, triggered a sharp decline in BTC from $71,000 to $69,000. This led to a significant reduction in open interest, which fell from $99 billion to $60 billion, indicating that traders have significantly pared their bets. Trading volumes also dropped by 10% in the past 24 hours, according to Coinglass data.

Street Views

• Mauricio Di Bartolomeo, Ledn (Bullish on the crypto lending market):

  "What I'm seeing is that this market has come back roaring. The market never really left; it [just] got scared."
  "Bitcoin has gone up from $20,000 to $70,000 and has become the focus of the political race in the U.S. So that means there's more interest, there is real product market for bitcoin as an asset and for bitcoin as a collateral for lending."
  "These are the firms that are operating in the ETF markets as well as spot. Some have made their names in crypto, some in TradFi."
  "What I'm seeing is sort of undisputed proof that people want to hold their bitcoin for the long term and also want to have their cake and eat it, too."