Bitcoin-backed loans are an innovative twist on traditional loans, merging them with the world of cryptocurrencies. These loans allow Bitcoin holders to use their digital assets without selling them, providing a unique route to access liquidity. The proliferation of crypto lending platforms has streamlined the process, making these loans increasingly accessible.

What is cryptocurrency lending?

Cryptocurrency loans are revolutionizing the way individuals interact with digital assets, providing exciting new ways to borrow and invest with cryptocurrencies. At the heart of this system are lenders who deposit their cryptocurrencies on lending platforms to earn high interest, surpassing traditional savings accounts due to market volatility.

Borrowers, on the other hand, have access to capital without liquidating their cryptocurrency holdings. By providing collateral, usually in the form of other cryptocurrencies, borrowers can obtain loans in stablecoins or fiat currencies, freeing up liquidity while retaining ownership of their assets.

A key driver of this innovation is the rise of decentralized finance (DeFi) platforms, which use smart contracts to automate the lending process, eliminating the need for intermediaries and improving transparency and security. Showcasing the potential of DeFi to transform financial services, platforms like Aave, Compound and MakerDAO have become leading players in this space.

In DeFi, lending Bitcoin (BTC) typically involves the use of Wrapped Bitcoin (WBTC), which is compatible with smart contract networks such as Ethereum, Arbitrum, Polygon or Solana, allowing users to participate in decentralized loans.

Types of Crypto Loans

Crypto loans are typically offered as collateralized loans, meaning that users’ crypto holdings back them. Much like a mortgage or car loan, the collateral can be seized as payment if users fail to repay their loan.

Some platforms impose overcollateralization, allowing users to borrow only up to a specific percentage of their deposited collateral. In oversized loans, the value of the collateral exceeds the value of the loan, which can secure better loan terms by reducing the risk for the lender.

On the other hand, unsecured loans, also called unsecured loans, do not require any collateral. Loan approval processes depend on factors such as a history of responsible credit use and timely payments. Cointelegraph

When using cryptocurrency as collateral, users have two main options. First, centralized finance (CeFi) lending involves borrowing money from a cryptocurrency or blockchain company that operates similarly to traditional financial institutions controlled by a private central authority, providing more stability and security.

Second, DeFi loans allow borrowers to access funds through decentralized blockchains. Run by an open source network instead of a single entity like a bank or government, DeFi products allow users to directly manage their digital assets. However, lenders can take steps to secure the loan if necessary.

Understanding Bitcoin-backed Loans

Bitcoin-backed loans operate under collateral management principles and provide a secure gateway for users to leverage Bitcoin’s collateral value and access fiat or stablecoins. This financial route is revered for its security, with Bitcoin’s comparative stability compared to other crypto assets and its ability to unlock the highest loan-to-value (LTV) threshold, second only to stablecoins.

The LTV ratio measures the loan amount relative to the appraised value of the asset purchased. This is a key metric for lenders to assess risk, with lower LTV ratios generally indicating lower risk.

A multitude of platforms in the CeFi and DeFi space support Bitcoin-backed lending. These platforms often adhere to custody and security standards that align with the philosophy of Bitcoin holders, prioritizing robust security measures.

Among the myriad of options available, some native Bitcoin solutions manifest as lending products built on layer 2 Bitcoin networks like Stacks. These products inherently rely on the security of the Bitcoin network while providing some degree of autonomous access to Bitcoiners.

How to get a Bitcoin-backed loan

Before obtaining such a loan, borrowers should understand the collateral management process, loan eligibility criteria, potential consequences of default, and available refinancing options.Cointelegraph

Step 1: The borrower applies for a loan

Borrowers start by applying for a loan through a platform specializing in Bitcoin-backed loans. During the loan application process, they provide details of the collateral, which is usually Bitcoin, and specify the desired loan amount.

Step 2: Borrower deposits Bitcoin into a lending platform’s crypto wallet

After approval, the borrower deposits the specified amount of Bitcoin into a crypto wallet provided by the lending platform. This Bitcoin is held in escrow for the duration of the loan, serving as collateral.

Step 3: The lending platform determines the LTV ratio

The platform then evaluates the valuation of the Bitcoin collateral assets and determines the LTV ratio, which sets the maximum loan amount relative to the collateral value. For example, if a borrower deposits $10,000 worth of Bitcoin and the LTV ratio is 50%, they can borrow up to $5,000.

Step 4: Loan disbursement process begins upon approval

Once the loan is approved, the loan disbursement process begins, with the borrower receiving the approved amount in the currency or stablecoin of their choice. Meanwhile, Bitcoin collateral remains secure in the platform’s wallet. The borrower makes regular interest payments throughout the life of the loan, usually monthly. The interest rate depends on several factors, including the loan amount, the borrower’s creditworthiness and market conditions.

What happens to Bitcoin collateral if a borrower misses a loan payment?

When the borrower repays the principal amount plus accrued interest, the Bitcoin collateral is returned to their wallet. However, if the borrower fails to repay the loan on time, options to refinance the loan may be available. In this case, the lending platform may issue a margin call, requiring the borrower to deposit additional Bitcoin or risk having their collateral liquidated to cover the outstanding balance.

Benefits of Bitcoin-backed Loans

It is essential to weigh both the benefits and risks before considering Bitcoin-backed loans. An important advantage lies in the preservation of Bitcoin holdings. Users do not need to sell their Bitcoin to access cash. This allows them to retain ownership of their digital assets and potentially benefit from future price increases while meeting their current financial needs.

Additionally, crypto loans often offer faster approval processes than traditional loans, providing quick access to funds, which can be particularly beneficial in emergency situations where immediate liquidity is needed to meet financial obligations or opportunities.

Another advantage is the global accessibility and flexibility of Bitcoin loans, which are available worldwide, regardless of geographic location or credit history. Users enjoy the freedom to select loan amounts, goals and repayment options, allowing them to access liquidity based on their financial needs and individual financial situation.

Additionally, lending Bitcoin on cryptocurrency platforms can offer users attractive interest rates, often higher than traditional savings accounts. Additionally, borrowing against one’s Bitcoin holdings can provide tax benefits by bypassing capital gains taxes due to the sale of Bitcoin, thereby optimizing users’ financial approaches while reducing tax liabilities.

Risks associated with Bitcoin loans

First, the inherent market volatility and price swings of Bitcoin can be dramatic, which creates risk for Bitcoin-backed loans, potentially leading to the liquidation of collateralized Bitcoin if its value falls below a predefined threshold. Bitcoin price fluctuations can significantly impact loan repayment obligations, requiring borrowers to develop prudent risk management strategies.

Second, Bitcoin loan interest rates are subject to market fluctuations, exposing borrowers to increased borrowing costs if interest rates increase over the life of the loan. Variability in interest rates can affect overall loan affordability and impact borrowers’ financial stability over time.

The evolving regulatory landscape introduces ambiguity around Bitcoin lending, creating uncertainty in legal, accessibility and service conditions. As regulations evolve, the availability and terms of Bitcoin loans may be affected. Borrowers must stay informed of these developments and adapt their strategies to effectively manage potential impacts.

Cryptocurrencies are not insured by traditional institutions, which can result in loss of collateral in the event of hacking or lender insolvency. Additionally, entrusting Bitcoin holdings to lending platforms exposes borrowers to risks such as fraud, insolvency and security breaches. It is crucial to select reputable platforms with robust security measures and transparent policies to effectively mitigate platform risks. Due diligence and thorough research can help borrowers identify reliable platforms and minimize the likelihood of adverse outcomes.

Lenders may require additional collateral or liquidation of assets if cryptocurrency values ​​fall below specific thresholds. Margin calls can occur suddenly and require borrowers to take immediate action to maintain their loan-to-value ratios, which could lead to asset liquidation or additional collateral requirements.

Finally, the inability to trade or transact crypto assets while holding outstanding loan balances may pose problems if prices decline, limiting access to or efficient use of collateralized assets and limiting the ability of borrowers to respond to changing market conditions or financial needs.

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More on-chain activity means more ether gas spent and a higher asset price, says Matthew Sigel, VanEck’s head of digital asset research.

VanEck plans to waive fees on its proposed ETH spot ETF through 2025 unless the fund reaches $1.5 billion in assets under management.

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Posted June 26, 2024 at 3:04 AM EST.

Investment manager VanEck plans to waive fees on its proposed Ethereum spot exchange-traded fund (ETF) until 2025, or until the fund reaches $1.5 billion in assets under management (AUM ), according to an amended S-1 deposit Friday.

“If the Trust’s assets exceed $1.5 billion before 2025, the sponsor fee charged on assets above $1.5 billion will be 0.20%,” the filing states.

“After 2025, the sponsorship fee will be 0.20%. »

Matthew Sigel, head of digital assets research at VanEck, said ETF.com that the move was aimed at “becoming a leader in crypto-ETF fees” even if the company loses money at first, in the hope that it would encourage investors to explore the role that Ethereum can play in their investment portfolios.

In a job on X, Sigel clarified that “the plan is to catch up on volume; in this case, decentralized finance [DeFi] volume.”

When asked to clarify what he meant by DeFi volume, Sigel explain that greater on-chain activity results in greater consumption of ether gas, which in turn would drive up the price of ether, driving up the “VanEck bags of ether.”

Whether or not this move will lead to more on-chain activity remains to be seen. Nonetheless, VanEck appears to be moving forward and preparing to launch its Ethereum spot ETF.

The company deposit a Form 8-A filed Tuesday with the U.S. Securities and Exchange Commission (SEC), which is one of the primary forms used to register securities before they are listed on an exchange.

The SEC approved eight spot ether ETF applications, including VanEck’s, earlier this year, and according to SEC Chairman Gary Gensler, the disclosure process before their launch is “going smoothly.”

“It’s really about asset managers providing complete disclosure so that these registration statements can be effective,” Gensler said at a conference. Bloomberg Invest Summit in New York on Tuesday.

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Solana Price Prediction: SOL has seen a price increase in the last 24 hours following the market recovery. At the time of reporting, Solana Price is trading at $137, up 2% in the US section.

According to CoinMarketCap According to the data, Solana’s market capitalization increased by 2%, reaching $63 billion, ranking it 5th. The 24-hour trading volume, however, decreased by 32%, to $2.2 billion, placing it in 6th place.

Solana Price Prediction: SOL Indicates Potential Upside

Solana has deviated from the broader market downtrend, with consecutive rises seen over the past 48 hours. SOL has maintained positive momentum, positioning itself as a standout crypto asset. However, other altcoins continue to face downtrends.

Over the past week, SOL Price experienced a decline in value. The cryptocurrency is down more than 1% over the past seven days, indicating significant selling pressure.

Despite the price rally, traders in the derivatives market showed a more cautious reaction. Meanwhile, major cryptocurrencies outside of Solana saw minimal fluctuations, with changes remaining below 1%, fluctuating between small gains and losses.

Solana has shown notable resilience despite the prevailing bearish sentiment in the crypto sphere. SOL price has formed a bullish technical pattern known as a “falling wedge.” This pattern is characterized by converging trendlines connecting lower and lower highs, sloping downward in a narrow pattern.

The falling wedge pattern generally suggests that even though the asset is consolidating in a downtrend, it is losing bearish momentum and potentially preparing for an upward reversal.

DeFi TVL Surge Boosts Solana Ecosystem

According to DéFiLlamaSolana’s network saw a significant increase in its total value locked (TVL), reaching $4.22 billion as of June 26.

Source: Defillama

This increase in TVL reflects growing engagement and trust within the Solana ecosystem, which is highly attractive to users and developers. TVL’s recent growth has been a driver of Solana’s bullish momentum.

If the bullish momentum continues to develop, the Solana Price Prediction could break through the crucial resistance level of $150, signaling a potential resurgence of bullish sentiment and aiming for targets around $190. A sustained upward move could pave the way for SOL to soon approach the important resistance mark of $200.

Conversely, increased downward pressure could lead to GROUND pullback to find support initially at $130. Further decline could test the lower support area near $120, potentially indicating a shift to bearish market sentiment.

Technical indicators suggest short-term bearish sentiment

Daily technical indicators for the Solana cryptocurrency suggest a potential change in market sentiment. The Moving Average Convergence Divergence (MACD) indicator shows bearish sentiment.

The MACD line is positioned at -7.32, while the signal line is slightly higher at -6.78. The histogram, reflecting the difference between these lines, is negative, indicating potential short-term bearish momentum.

Solana Price Prediction| Source: Commercial view

Meanwhile, the Relative Strength Index (RSI) is at 40, indicating that Solana is in the lower neutral zone. The RSI suggests that the token is neither overbought nor oversold, but is closer to the oversold threshold of 30. This positioning hints at the possibility of a price rebound if buying interest increases.

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The Hong Kong government has shifted its focus to decentralized finance (DeFi) and metaverse technologies to strengthen its global financial technology position.

Recent reports from the Hong Kong Institute of Monetary and Financial Research (HKIMR), the research division of the Hong Kong Academy of Finance (AoF), support this move.

Hong Kong Kiir Mk. report DeFi is noted to be growing substantially, with market capitalization increasing from $6 billion in 2021 to over $80 billion in 2023. Despite this rapid expansion, DeFi currently only represents 4% of the overall cryptoasset market. The report suggests that more than 70% of crypto companies need to fully explore the possibilities of DeFi.

The report recognizes The challenges of DeFi, including governance, compliance and vulnerabilities. Nevertheless, he remains optimistic about the potential of DeFi to introduce innovative financial services. These services can improve automation and financial inclusion, making them a notable aspect of future financial systems.

Metaverse engagement among financial institutions

The second HKIMR report focuses on the metaverse, revealing a moderate level of engagement among Hong Kong financial institutions. Despite their interest, more than half of those surveyed (51%) expressed skepticism about the future potential of the metaverse. However, some segments of Hong Kong’s fintech industry are actively pursuing metaverse-related developments, indicating a growing recognition of its possibilities.

Hong Kong eyes DeFi and the metaverse for fintech expansion!

Government-backed studies highlight the potential for growth and innovation in these sectors, despite current challenges.

“The potential of DeFi cannot be ignored” with its market capitalization growing from $6 billion in 2021 to $80 billion in… pic.twitter.com/fgiweW4ALz

-Alex (@Chaserr_) June 26, 2024

Enoch Fung, CEO of AoF and Executive Director of HKIMR, commented on the synergy between emerging technologies and financial services.

“Emerging DeFi and metaverse technologies, which are closely linked to broader developments in virtual assets and Web3, will likely present various opportunities for the financial services sector in Hong Kong.”

Promoting Hong Kong on the international technology scene

Hong Kong government officials have taken steps to promote the city as a prime location for fintech and Web3 startups. Representatives attended the Collision 2024 technology conference in Toronto, demonstrating Hong Kong’s desire to serve as an offshore technology hub for Canadian crypto and Web3 Companies. The event was co-hosted by the Hong Kong Economic and Trade Office in Toronto (Toronto ETO), Invest Hong Kong (InvestHK) and StartmeupHK (SMUHK).

Despite positioning itself as a crypto-friendly hub, Hong Kong has seen a series of crypto exchange closures. In March 2024, HKVAEX, allegedly affiliated with Binance, withdrew its license application. This was followed by the release of IBTCEX, QuanXLab, Huobi HK, Gate.HK, OKX HK and Bybit (Spark Fintech Limited) in May. These departures leave 17 virtual asset trading platforms on the application list, with 11 companies withdrawing or returning their license applications.

The withdrawal of license applications has raised concerns about Hong Kong’s cryptocurrency licensing system. Wu Shuo, a member of Hong Kong’s Legislative Council, has publicly criticized the system, arguing that it undermines market confidence. The recent closures and withdrawals have highlighted the difficulties crypto companies face in navigating Hong Kong’s regulatory landscape.

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