{"id":216585,"date":"2017-12-14T07:55:55","date_gmt":"2017-12-14T05:55:55","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=216585"},"modified":"2017-12-14T07:55:55","modified_gmt":"2017-12-14T05:55:55","slug":"bitcoins-new-barons-no-longer-have-to-sell-to-live-in-luxury","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/trending\/216585\/bitcoins-new-barons-no-longer-have-to-sell-to-live-in-luxury\/","title":{"rendered":"Bitcoin’s new barons no longer have to sell to live in luxury"},"content":{"rendered":"
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The woes of an early bitcoin investor. Until recently, people who paid virtually nothing for the virtual currency and watched it soar had only one way to enjoy their new wealth – sell. And many weren\u2019t ready.<\/p>\n

Lenders on the fringe of the financial industry are now\u00a0pitching a solution: loans using a digital hoard as collateral.<\/p>\n

While banks hang back, startups with names like Salt Lending, Nebeus, CoinLoan and EthLend are diving into the breach. Some lend – or plan to lend — directly, while others help borrowers get financing from third parties. Terms can be onerous compared with traditional loans. But the market is potentially huge.<\/p>\n

Bitcoin\u2019s price hovered around $17,000 much of this week, giving the cryptocurrency a total market value of almost $300 billion. Roughly 40% of that is held by something like 1,000 users. That\u2019s a lot of digital millionaires needing houses, yachts and $590 shearling eye masks.<\/p>\n

\u201cI would be very interested in doing this with my own holdings, but I haven\u2019t found a service to enable this yet,\u201d said Roger Ver, widely known as \u201cBitcoin Jesus\u201d for his proselytizing on behalf of the cryptocurrency, in which he in one of the largest holders.<\/p>\n

People controlling about 10% of the digital currency would probably like to use it as collateral, estimates\u00a0Aaron Brown, a former managing director at AQR Capital Management who invests in bitcoin and writes for Bloomberg Prophets. \u201cSo I can see a lending industry in the tens of billions of dollars,\u201d he said.<\/p>\n

One problem is that bitcoin\u2019s price swings violently, which can make it dangerous for lenders to hold. That means the terms can be steep.<\/p>\n

Someone looking to tap $100,000 in cash would probably need to put up $200,000 of bitcoin as collateral, and pay 12% to 20% in interest a year, according to David Lechner, the chief financial officer at Salt, which has arranged dozens of loans.<\/p>\n

That\u2019s in line with interest rates for unsecured personal loans. The difference is that putting up bitcoin lets people borrow more.<\/p>\n

The new loans should be of particular interest to miners, whose computers\u00a0solve complex math problems to obtain new coins and help confirm transactions, Brown said. They have to pay for electricity and equipment. But, like many bitcoin believers, they don\u2019t like to sell their crypto. Bitcoin startups also need cash to pay employees.<\/p>\n

Late last month, London-based startup Nebeus began helping third-party lenders offer loans backed by bitcoin and ether, another cryptocurrency. The firm arranged almost 100 such loans on the first day, according to Konstantin Zaripov, the company\u2019s managing director. It has since done more than 1,000.<\/p>\n

Salt offers loans and plans to eventually help banks do so too. It\u2019s talking with financial institutions and aims to strike a deal with at least one of them \u201cwithin weeks,\u201d Lechner said.<\/p>\n

Some companies also require a second form of collateral. Terms can include maintenance calls, requiring borrowers to post more bitcoin if the price drops. That\u2019s similar to the margin that a dozen or so cryptocurrency exchanges already offer clients so they can ramp up their trading bets.<\/p>\n

In a twist, some lenders are hoping to use blockchains – digital ledgers akin to those underpinning bitcoin – to facilitate lending. The idea is to stitch terms into a ledger to help automate the loan and collections. If they take off, the model could challenge peer-to-peer lenders – such as LendingClub Corp, Prosper Marketplace Inc and Zopa Ltd – by offering debt investors more reliable repayment, according to Lucas Nuzzi, a senior analyst at Digital Asset Research.<\/p>\n

\u201cAlthough this has the potential of revolutionizing credit markets, we are still in the very early stages of development,\u201d Nuzzi said. \u201cNo companies have been able to fully implement such a system.\u201d<\/p>\n

For now, banks are largely on the sidelines, reluctant to offer services that could leave them holding bitcoins.\u00a0Some firms don\u2019t have a secure way to store cryptocurrency. And there\u2019s no established model to account for it on a regulated balance sheet.<\/p>\n

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Read: Bitcoin\u2019s first 24 hours on Wall Street feed euphoria and doubts<\/a><\/strong><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

The woes of an early bitcoin investor. Until recently, people who paid virtually nothing for the virtual currency and watched it soar had only one way to enjoy their new wealth – sell. And many weren\u2019t ready.<\/p>\n","protected":false},"author":59,"featured_media":208605,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-216585","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-trending"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/216585","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/59"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=216585"}],"version-history":[{"count":1,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/216585\/revisions"}],"predecessor-version":[{"id":216591,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/216585\/revisions\/216591"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/208605"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=216585"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=216585"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=216585"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}