Crypto Exchange TutorialsCrypto Exchange Tutorials
    What's Hot

    The crypto industry needs a crypto capital market structure

    July 4, 2022

    Bitcoin’s inverse correlation with US dollar hits 17-month highs — what’s next for BTC?

    July 4, 2022

    Bitcoin addresses in loss hit all-time high amid $18K BTC price target

    July 4, 2022
    Facebook Twitter Instagram
    • Binance
    • OKEx
    • Hotbit
    • bybit
    Facebook Twitter Instagram
    Crypto Exchange TutorialsCrypto Exchange Tutorials
    • BitMart Tutorials
    • Gate.io Tutorials
    • OKEx Tutorials
    • Bityard Tutorials
    • FTX Tutorials
    Crypto Exchange TutorialsCrypto Exchange Tutorials
    Home » Crypto lending can still survive bear market, analyst says
    Crypto lending can still survive bear market, analyst says
    Business

    Crypto lending can still survive bear market, analyst says

    coffeecoinoBy coffeecoinoJune 20, 2022No Comments3 Mins Read
    Share
    Facebook Twitter LinkedIn Pinterest Email

    The ongoing bear market on cryptocurrency markets is too harmful to industry lenders, but the concept of crypto lending can still survive the bloodbath, according to some industry experts.

    Cryptocurrency lending is a type of crypto service that allows borrowers to use their crypto assets as collateral to get loans in fiat currencies like the United States dollar or stablecoins like Tether (USDT). The practice allows users to get money without having to sell their coins and repay the loan at a later date.

    According to Josef Tětek, Bitcoin (BTC) analyst at the crypto cold wallet firm Trezor, crypto firms that run their business on a fractional-reserve basis are exposed to greater risks during bear markets.

    In traditional banking, the fractional-reserve model is a system where only a fraction of deposits is backed by actual cash. Crypto lending companies are “definitely running a fractional-reserve business” to provide yields to their customers, according to Tětek.

    “Exchanges and custodians that run on a fractional-reserve model are playing with fire. This practice may work fine during bull markets when such companies experience net inflows and grow their customer base,” the executive stated.

    According to Tětek, sharp declines in cryptocurrency prices are more bearable for crypto businesses that do not provide lending services and do not leverage users’ deposits. This allows them to survive the domino effect of falling prices and companies going under.

    “If you throw in leverage — trading with borrowed funds — the losses are often much more painful, especially with sudden price moves,” Tětek noted.

    In order to survive the ongoing crypto lending crisis, cryptocurrency lenders need to solve a major issue related to short-term assets and short-term liabilities, the analyst argued, stating:

    “Crypto lending as a concept can survive this crisis, but the sector needs to get rid of the maturity mismatch problem: if someone else borrowed my assets and I get a yield as a return, then I have to wait for the borrower to repay before I can withdraw.”

    Tětek went on to say that liquidity issues are inevitable for lenders that promise full liquidity on assets that are lent out at the same time.

    “Every participant needs to respect the risks involved and the fact that there are no bailouts in the space, so if a borrower fails to repay, a lender has to accept their loss. There is no risk-free yield, and often the yield is not worth the risks,” he added.

    Related: Celsius recovery plan proposed amid community-led short-squeeze attempt

    The crypto lending industry has been facing one of its biggest historical crises amid cryptocurrency prices dropping to 2020 levels, with the total market cap shrinking by more than $1 trillion since the beginning of the year.

    Celsius, a major global crypto lending platform, suspended all withdrawals on its platform on June 13, citing “extreme market conditions” as its native CEL token lost about 50% of its value. Hong Kong-based asset manager and crypto lender Babel Finance also temporarily suspended redemptions and withdrawals from its products on June 17 due to “unusual liquidity pressures.”

    • #Cryptocurrencies
    • #Business
    • #Bitcoin Price
    • #Adoption
    • #Lending
    • #Regulation
    Related News
    • Blockchain to Disrupt Music Industry and Make It Change Tune
    • Fully managed end-to-end marketplace releases NFTs with high holder rewards
    • Scams in GameFi: How to identify toxic NFT gaming projects
    • Why the crypto market crash may play in Bitcoin’s favour
    • Taxes of top concern behind Bitcoin salaries, Exodus CEO says
    • Consensus 2022: Web3, unpacking regulations, and optimism for crypto’s future

    #Cryptocurrencies
    Share. Facebook Twitter Pinterest LinkedIn Tumblr Email
    coffeecoino
    • Website

    Related Posts

    Tether continues to reduce commercial paper in sharp reduction since March

    July 1, 2022

    June roundup: Who’s hiring and who’s firing in the crypto space

    July 1, 2022

    Ignite CEO announces departure after seven years

    July 1, 2022

    BlockFi announces deal with FTX US, including ‘option to acquire’ for $240M

    July 1, 2022
    Add A Comment

    Leave A Reply Cancel Reply

    Top Posts

    Subscribe to Updates

    Get the latest sports news from SportsSite about soccer, football and tennis.

    Advertisement
    Demo

    coffeecoino covers fintech, blockchain and Bitcoin bringing you the latest news and analyses on the future of money.

    We're social. Connect with us:

    Facebook Twitter Instagram Pinterest YouTube
    Top Insights

    The crypto industry needs a crypto capital market structure

    July 4, 2022

    Bitcoin’s inverse correlation with US dollar hits 17-month highs — what’s next for BTC?

    July 4, 2022

    Bitcoin addresses in loss hit all-time high amid $18K BTC price target

    July 4, 2022
    Get Informed

    Subscribe to Updates

    Get the latest creative news from Cryptocurrency , bitcoin and ethereum

    Crypto Exchange Tutorials
    Facebook Twitter Instagram Pinterest
    • Binance
    • Huobi
    • CoinEx
    • BitMart
    • OKEx
    • Gate.io
    • FTX
    • Bityard
    • CoinFLEX
    • ProBit
    © 2023 coffeecoino. Designed by Nikrad Co..

    Type above and press Enter to search. Press Esc to cancel.