Bitcoin collateral lending is evolving into a mainstream source of credit, where borrowers obtain liquidity by pledging BTC without having to sell their bitcoins.
Lending institutions indicate that Bitcoin mortgages are increasingly being used for real-world needs, including tuition fees, emergency expenses, corporate cash flows, and large purchases.
They claim that borrowers use such loans in order to obtain liquidity without selling Bitcoin, which indicates that the market is shifting from speculative trading to mainstream credit.
As the market matures, lending institutions are introducing fixed-rate products and extending this model from Bitcoin to other hard assets such as gold.
According to two lending institutions that have been engaged in this business for a long time, loans obtained by using Bitcoin worth $82,868.46 BTC as collateral are increasingly being used to pay tuition fees, cover funding gaps during off-peak seasons, and meet the cash needs of businesses.
SALT Lending Chief Revenue Officer Hunter Albright said to CoinDesk: "What I observe in our communications and from the data is that more and more people are starting to use their Bitcoin as collateral for loans to meet their real-world needs. This includes emergency expenses, as well as some more important life decisions, such as paying for university tuition or undertaking a once-in-a-lifetime trip. We also see people using it to supplement their cash flow."
He stated that this marks a profound change in the way digital assets are used. Bitcoin is no longer merely seen as a speculative tool, but rather as a collateral for credit, which is a key development for alternative finance, as the industry is striving to establish and enhance its mainstream appeal.
SALT has been providing Bitcoin mortgage loans since 2016, initially targeting Bitcoin miners who earn BTC rewards by verifying blockchain transactions. Recently, the lending institution has noticed an increase in institutional borrowers, as well as individuals from the "X Generation and Baby Boomer generation who hold Bitcoin and are interested in learning about the loan process."
Although SALT has not disclosed the total amount of its historical loans, the broader centralized lending market has revealed much larger figures.
The centralized lending institution Ledn, established in 2018, has stated that it has disbursed over $11 billion in loans to date. The company expects that as more and more customers opt for non-traditional loans, this figure is expected to grow to one trillion dollars in the coming years.
The lending activities of Ledn and the continuously expanding base of borrowers also indicate that the mainstream adoption of encrypted mortgages is on the rise.
Ledn, Co-Founder and CEO, said to CoinDesk: "Our range of borrowers is wide, from traditional investors who wish to maximize the value of their Bitcoin holdings, to entrepreneurs looking for working capital, to institutional participants as well."
He explained that the private wealth clients of Ledn typically borrow large amounts of funds for "investments, real estate, business operations, or larger expenditures such as their children's education."
At the same time, retail customers will borrow smaller amounts of money for short-term needs, such as to cover a month's living expenses when their main income is not sufficient to cover their expenditures.
Continue to hold with a loan
The main motivation for borrowing using BTC as collateral is to release liquidity from passive investments, without the need to sell and thus lose exposure to that asset.
Albright pointed out that the core goal of SALT since its establishment has not changed. "We do not believe that people should be forced to sell their most valuable assets in order to obtain asset value," he said.
Customers of Ledn share the same philosophy as well.
Reeds Indicates that "the reason people use Bitcoin as collateral for loans is that they believe Bitcoin will be more valuable in the future, and at the same time, they also want to be sure that they can get it back."
He added that this belief is also the reason why Ledn customers continuously renew their loans.
"Most customers will renew their loans because the core premise of this lending model is not to sell Bitcoin but to continue holding positions," said Reeds.
Albright indicates that financial strategies, which were previously only used by ultra-high-net-worth individuals and large corporations, are now beginning to become more widespread. "Now, based on the assets people own and hold, these strategies are being made available to a broader range of people," he said.
Fixed interest rates are the focus of the next step.
In order to solidify this mainstreaming shift, lending institutions are turning to providing more predictable costs. The goal of SALT is to make crypto loans more akin to traditional mortgages.
Albright said, "Our ultimate goal is to make loan products more akin to mortgages, meaning borrowers will be able to borrow over a longer period at a fixed interest rate. Even if Bitcoin continues to fluctuate, this will provide greater predictability in borrowing costs."
Large industry participants are already verifying this approach. On September 22nd, Coinbase incorporated fixed-rate Bitcoin mortgages into its retail applications through the Midnight protocol of Morpho. Users can borrow USDC using Bitcoin as collateral, with the interest rate and repayment date being determined at the outset. These fixed-rate options are offered alongside the existing floating-rate loans on Morpho, which have an outstanding balance of over $1.4 billion and collateral worth approximately $3 billion.
However, the fixed-rate loan term of Coinbase is relatively short, while SALT aims for a longer term.
The next step is gold.
Looking to the future, Ledn believes that this collateralization model will extend from Bitcoin to gold. Gold is a traditional safe-haven asset that has long been widely used around the world to release liquidity through lending.
Reeds said, "The next stage of hard asset-backed lending is to expand more broadly around hard assets." He pointed out that precious metals represent the natural direction of this evolution.
“Gold is the most obvious next example. It represents a asset worth trillions of dollars, yet borrowing and lending related to it remains largely a privilege of institutions. For most ordinary holders, the only way to obtain cash from gold is by selling it,” said Reeds.
In the end, the boundary between digital assets and physical alternative assets in the eyes of modern investors is becoming blurred.
“Our clients are increasingly thinking in terms of holding hard assets for the long term and using them as collateral for loans, rather than selling them,” said Reeds.
