How big is the traditional asset based loan market 2021?
ABF is estimated to be around $4.5 trillion globally.
The traditional equity lending market is over a trillion dollars.
How big is the crypto loan market in 2021?
According to PointPay, the crypto loans market is around $30-35 billion in 2021.
As you can see the crypto loan market is still in its infancy. As the crypto market cap grows over time, so will the crypto loan business.
Why do people take crypto loans?
There are a number of reasons people use assets like their stock or crypto portfolios as collateral for a loan.
A one-time expense or business opportunity
Crypto lending explained
Your crypto portfolio has increased in value and we are still in a bull run. You wish to access some of your profit to utilise elsewhere, perhaps to buy a car or house for example.
A loan against your crypto portfolio allows you to not only stay in the game, but also use some of the profit for something else.
Because the crypto market is very volatile you may have to lock up (with the lender or agreed upon third party) a higher amount of crypto than you want to borrow.
Once you have paid your loan back, plus the interest you will have full control and ownership back of your crypto portfolio.
Your cryptocurrency will only be at risk if you do not keep up with the loan terms, or if your collateral falls below the value of the loan you received.
Once your loan is agreed, unlike in the traditional financial sectors crypto loans are often paid out instantly.
Borrowers can usually use different crypto tokens as well as Stablecoins as collateral. They may also be able to switch between different cryptocurrencies to lend or borrow all from the same platform.
How do crypto loans differ from traditional equity portfolio loans?
Crypto loans work in a similar way to traditional lending platforms with a few differences.
How to get a crypto loan
There are two avenues available to people looking for a crypto loan. Centralised and decentralised lending platforms. There are also crypto loans available without collateral, but we will concentrate on the more traditional and trusted lending methods below.
Centralised lending platforms
If you go the route of a centralised lending platform you will have more security, but you will have less privacy and you will be expected to fill out a (KYC) know-your customer form.
Centralised lending platforms usually offer a more secure platform than some decentralised ones. Centralized platforms often offer full insurance on your assets and cold storage facilities. They may also offer a trusted and regulated third party escrow service.
Decentralized lending platforms (DeFi lending)
DeFi lending platforms are completely decentralised. Transactions are done through code rather than by people. Some of the larger DeFi lending platforms use smart contracts which utilises algorithms and protocols to automate loan payments. There are no middlemen.
Loans through a DeFi platform are usually very quick due to smart contracts. Once approved for a loan you simply send the crypto you wish to use as collateral to a specified digital wallet associated to the lending platform and your account.
People like DeFi lending platforms as they can apply for any sized loan without having to divulge their identity.
The future of crypto loans
NFT loans have started to pop up in 2021 and I believe this will become big business over the next few years. You will be able to put up your NFTs as collateral for loans.
More crypto mining (stock) companies are popping up as the west takes back more of the bitcoin and crypto mining from China. Not to mention more blockchain companies and exchanges are looking to go public in the future. Borrowing against stocks is already big business and this will include stocks in crypto publicly traded companies.
It is only a matter of time before we start to see mainstream businesses look towards the crypto lending sector and start to offer similar products like crypto mortgages as well as short and long term crypto portfolio lending.
During 2020 and 2021 we have seen many altcoins as well as bitcoin increase significantly and so the crypto loans market has also increased in size. It will be interesting to see how this pans out in a crypto bear market, especially of the lending platforms operate using a loan-to-value (LTV) ratio.
Regardless, we are still in the early days of crypto lending and the future is looking very bright as this becomes a more mainstream, regulated business sector.
Visit our crypto borrowing and lending business listings section to find a lending platform.
If you would like to purchase cryptocurrencies please visit our crypto exchanges to find out how.
Would like to learn more about cryptocurrency? Visit our website spendingcrypto.com and have a look around.
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