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.

Source: Researchgate

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.

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A one-time expense or business opportunity

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Cashflow
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Take advantage of a large portfolios value
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Tax efficient
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Lower interest rate than other loan avenues like credit cards, personal or bridging loans.
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A portfolio line of credit avoids you having to sell your assets in a rising market. For example, the crypto market is in a bull run and rather than sell your portfolio to pay for something and lose out, you can take a loan out against it and use the gains to pay for your interest owed. As long as the interest rate is less than your portfolios gains you will do very well. Timing of course, is everything.
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Avoid capital gains tax. Depending on your tax jurisdiction, a crypto portfolio loan is often not taxable and you may not even have to report it on your tax return. This helps you by first not having to pay capital gains tax and second, you may avoid pushing yourself into a higher tax bracket.
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Sometimes no credit score is asked for which makes it easier to borrow for poor credit score applicants.
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To leverage or margin trade even more aggressively in the crypto market

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?



Traditional loans

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Usually leaders will to allow you to borrow up to 70% of your investment portfolio value. The percentage offered is often dependent upon how risky your investments are. Bonds and property for example are considered more stable as assets to borrow against than say stocks.
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The usually portfolio loan rate is around 5% APY or less.
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There are often restrictions on what you can use the money for.
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You can borrow for a short time-period or longer term.
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Borrowers may be required to put up additional security.
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If your stock portfolio (for example) drops significantly you may be asked to replenish the account holding the collateral. Some lenders may even have the right (under certain contracts small print) to sell your assets from the account if you don’t pay your loan payments on time, or you don’t add more assets when asked to.
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Usually the bigger the loan the better the rate of interest you are offered. This is why you will see wealthy investors use their investment portfolios as collateral all the time.
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Interest rates are often variable, although you can find fixed rates. This can be fantastic when interest rates are low, but if you are taking the loan out for a longer period of time you should be aware that rates and your payment amounts may suddenly rise.

Cryptocurrency loans

Crypto loans work in a similar way to traditional lending platforms with a few differences.

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Decentralised lending platforms with no middle men
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No KYC needed (DeFi platforms only)
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DeFi platforms allow anonymous borrowing
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Instant loans and approval
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Loans can often be used for absolutely anything with few, if any restrictions

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.

Summary

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.

Finally …

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.

Thank you and we hope that you enjoyed reading this article and we would be very grateful if you would share our article with your friends.

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Jonathan Titley
Author: Jonathan Titley