Chinese Firms Venture Into Crypto Lending To Ride Bear Market, Over $60 Million In Loans Already
The crypto bear market has forced several Chinese-based crypto investment firms and funds to seek out new revenue streams, including through lending services.
As reported by Coindesk, some of the emerging crypto lenders are notable names within the space. Among those to launch the new lending operations are FBG Capital, Bixin Capital, DGroup, and startup Babelbank.
Together, the investment companies have originated a reported $60 million in loans to various entities.
Most of the borrowers are from the domestic market and range from retail investors to hedge fund traders and even cryptocurrency miners.
The loans are given predominantly in cryptocurrencies, although one of the firms denominated its offering in the local Chinese yuan.
Demand driving crypto lending businesses
The key driver here appears to be the increased demand for funds even as the crypto market faced a sustained market downturn for much of 2018 and Q1 of 2019.
Xi Wang, the chief financial markets officer at Bixin Capital noted that “demand for personal crypto loans,” has risen despite the bear market. To crypto lenders, this presents a prime chance to make profits from a fairly stable bet.
Among those borrowers driving demand for crypto lending services are Chinese crypto miners. The miners prefer borrowing USDT, which they liquidate at OTC desks into local fiat and use the money to clear electricity bills.
Wang noted that this is partly as a result of miners being “reluctant to liquidate their mining results” at a time BTC prices are on the floor.
Beijing-based Babelbank, which launched its crypto bank services last September, counts more than 90 percent of borrowers on its platform as crypto miners. With $27 million in outstanding loans, the firm said that most borrowers took the loans in anticipation for the cheap power expected over the summer.
Demand is also very strong from OTC and Chinese hedge fund traders who are said to borrow bitcoin and offer USDT as collateral.
Enforcing collateral is key
Bixin Capital and FBG both launched their crypto lending businesses last year, with the former doing so in November 2018 and the latter a little earlier than that. Bixin currently allows customers to borrow funds in bitcoin (BTC), ether (ETH), Eos (EOS), Litecoin (LTC) and tether (USDT).
Borrowers offer collateral in one of the supported coins and pay a 7 percent interest annually.
At the moment, Bixin has about $10 million in USDT loans advanced to investors, while that of FBG stands at nearly $15 million worth of various cryptocurrencies.
Unlike with traditional bank loans, crypto lenders don’t have the luxury of evaluating a borrower’s credit score, job, education or properties. And according to Wang, the only risk control crypto lending platforms have at their disposal is collateral.
This, he notes, needs strict enforcement or even “forced liquidation.”
Although both Bixin and FBG act as a crypto bank, the firms have tried to steer clear of handling loans in Chinese yuan. Apparently, collecting debt in fiat presents a challenge in that firms can’t tell if the money involved is “clean.”
Again, using Chinese yuan could attract penalties from authorities, including shut down or suspension of bank accounts.
A different type of crypto lender
The challenge of using the Chinese yuan seems to have propelled the business of another of the crypto lenders in China.
DGroup operates a crypto lending platform dubbed RenRenbit, which doesn’t act as a lender but serves to connect borrowers and third-party lenders via a consumer-to-consumer advertising service.
Borrowers on the platform can take out loans in Chinese yuan or cryptocurrency, and offer collateral using other types of assets they hold on the RenRenbit platform.
Since November, RenRenbit has facilitated loans worth between $15 million to $20 million, with the platform’s CTO Wei Wang revealing that this volume originates from not more than 200 investors.
Potential borrowers on the RenRenbit get the option of setting their own limit regarding the annualized interest rate- usually between 8 percent and 12 percent. Investors then have the freedom to decide whether, or not, to advance the loan.
DGroup makes profits via a 20 percent commission charged to lenders on interest collected on each loan facility.
Cryptocurrency lending is quickly becoming big businesses in the crypto space, with several other firms looking to launching services.
An example is billionaire investor Mike Novogratz’ Galaxy Digital, a cryptocurrency fund that is looking to raise $250 million to launch a lending platform.
Recently, crypto lender BlockFi announced it had raised over $25 million worth of bitcoin and ether in investor deposits after it launched an interest earning account.
Disclaimer: This is not investment advice. Cryptocurrencies are highly volatile assets and are very risky investments. Do your research and consult an investment professional before investing. Never invest more than you can afford to lose. Never borrow money to invest in cryptocurrencies.