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NextGen Magazine


As Bitcoin Becomes Increasing Intertwined With Economy, Lender Now Accepting It As Collateral

Chris Gaetano
Published Date:
Jan 8, 2018


The rise of digital cryptocurrencies like Bitcoin has led to a corresponding rise in lenders willing to accept them as collateral, according to CFO.com. Unchained Capital, a financial services firm with a presence in 28 states, has begun giving out cash loans secured by a portion of the borrower's bitcoin assets. This is being marketed to Bitcoin enthusiasts not so much as a way to gain financing for a new business, but as a way to rapidly convert the digital currency into sovereign currency without necessarily having to go through an exchange. These loans will then be sold to other investors, who are currently backing Unchained Capital. To account for the currency's notorious volatility, the lender demands a 50 percent loan-to-value ratio, meaning you'd need $200,000 worth of bitcoins to secure a $100,000 loan, with additional collateral required if the price drops more than 25 percent (a drop of 45 percent or more will cause the loan to foreclose completely). Until the end of the loan term, which ranges from 3 months to 2 years, the borrower pays only the interest, with the principal due at the term's end. 

Bitcoin's meteoric rise has increasingly intertwined it with the mainstream economy. There are 120 bitcoin-focused hedge funds, one of which had a return of 20,004 percent (yes, really), and a French mutual fund devoted to the currency opened in November. Meanwhile, people can already invest in Bitcoin futures, which in turn has led to the development of Bitcoin ETFs to make bets on the value of those futures contracts. These developments come amid increasing speculation that the high value of Bitcoin and other cryptocurrencies are the product of a bubble—for example, an unprofitable iced tea company changed its name to include the word “Blockchain,” (the technology that makes Bitcoin possible) despite their main product being beverages, and its stock rose 500 percent. This saved it from being delisted by NASDAQ. Even if it is, though, there remain over 1,000 different cryptocurrencies, indicating that the phenomena is here to stay, at least for now.