It is now possible to attain a loan for Canadian Dollars (CAD) using bitcoin as collateral. The ability to use crypto as a form of collateral for fiat is a sign of further legitimacy for the sector. More providers are expected to follow suit and offer crypto loans, with a wider range of fiat currencies for a larger range of acceptable cryptocurrencies used as collateral.
The first CAD loan backed with BTC
According to an online Canadian publication, this is the first time that a CAD loan has been issued using BTC as collateral. The company who offer the bitcoin-backed loan are known as Ledn, and the loan was given to Bitcoin payment processor Bylls. The ability to use cryptocurrency as collateral has a number of advantages in relation to tax, liquidity, and as an alternative form of collateral where traditional assets (such as houses and cars) are not in possession. This could be a frequent occurrence for later generations who view crypto assets as preferable to ‘solid’ assets such as houses and cars, which are being increasingly burdened with regulatory requirements. It also provides a means for cashing out on cryptocurrency by using it as collateral for a fiat loan instead of selling it on an exchange. According to Ledn co-founder Mauricio Di Bartolomeo –
“Before our Bitcoin-backed loans, both ‘hodlers’and Bitcoin business operators were at the mercy of the markets when they needed liquidity. With Ledn, they now have access to a source of liquidity while they await more favorable market conditions”
“Ledn loans may also be a more tax advantageous way to access liquidity: whereas on the one hand, sellers of Bitcoin are subject to taxes on their profits, on the other hand, interest payments on Ledn loans may be tax deductible.”
Crypto loans market increasing in popularity
Cryptocurrency is already making its presence known in the loan market. Last month, loan provider Nexo announced that it was accepting XRP as collateral for loans, making it among the first lenders to accept XRP as collateral. Csaba Csabai, CEO of Inlock (a blockchain startup aimed at disrupting the loan sector), has stated that –
“The concept of having a collateral class with money-like liquidity is relatively new. The growth will be enormous once major financial institutions realize the opportunity this new form of lending has to offer.”
However, cryptocurrency is more than just a new form of collateral for the classical loan agreement system. New kinds of crypto loans are taking place. Pure crypto loans are available using crypto as collateral, and new peer-to-peer lending marketplaces have emerged based on the Ethereum platform, such as EthLend, CoinLoan, and SALT. Ultimately, cryptocurrency is providing new means of financial access outside of the fiat credit system. People will have the ability to tokenize their assets and raise capital on a decentralized marketplace, where individuals or groups can then lend finance (in the form of tokens) with customized terms and conditions.
The current trend is that financial institutions are being displaced as lenders in the marketplace. Decentralized technology is enabling individuals to transact among themselves using cryptocurrencies instead of fiat on their own terms.
Digital Nomad with an interest in Zen and Blockchain technology.
Law graduate with 3 years experience as a consultant in the capital markets industry and 4 years experience freelancing on UpWork as a Creative Writer.