Bitcoin’s recent price surge above $100,000 is breathing new life into the crypto lending world, especially in the decentralized finance (DeFi) space. This renewed interest suggests a potential revival for this crucial part of the crypto market.
Bitcoin’s Funding Frenzy
Bloomberg data shows a massive jump in Bitcoin’s funding rate – the extra cost traders pay to hold long-term Bitcoin futures. It’s increased more than tenfold since June, showing a huge appetite for leveraged Bitcoin bets. This surge is fueled by optimism around Bitcoin’s growing mainstream adoption.
A Sector’s Second Chance
The crypto lending sector has had a rough ride. The 2022-2023 period saw many platforms collapse due to risky lending practices. But things are looking up. Crypto lending activity has almost tripled in the first nine months of 2024 compared to last year, though it’s still not back to its 2021 peak. One crypto lender explained that people who’ve held Bitcoin for a while are now using it to buy things like houses and cars. Others are using it for long-term investments.
The Role of Crypto Lenders
Crypto lenders are vital because they provide liquidity in a volatile market. Traditional banks are hesitant to lend to crypto firms due to regulatory uncertainty, creating a space for crypto lenders to thrive. The 2021 bull market saw companies like Genesis and BlockFi become major players.
However, the failures of the past still cast a long shadow. The recent guilty plea of Alex Mashinsky, co-founder of the failed Celsius Network, serves as a stark reminder of the risks involved. Celsius’s collapse left over $1 billion in debt.
The Numbers Tell a Story
While lending activity is recovering, it’s still significantly below 2021 levels. Total lending through DeFi and centralized platforms is about half of what it was in the first nine months of 2021, but it’s still a massive $36.8 billion—a threefold increase from 2023. DeFi is leading the charge, handling almost $31 billion in loans. Interestingly, the total value locked in Ethereum-based lending apps has recently surpassed its 2021 peak.
Cautious Optimism
Despite the recovery, caution remains. The memory of unsustainable yields offered by some lenders before the market crash is fresh in many investors’ minds. Institutional lenders, in particular, are being more careful. Some are even pulling out of crypto lending altogether.
However, some centralized exchanges and brokerages are stepping in to fill the gap. For example, Galaxy Digital saw a 20% increase in its loan book since mid-August.
At the time of writing, Bitcoin was trading at $99,130.
