The increase in the price of Bitcoin recently, which has passed $100,000 for the first timeis creating ripples in the long-struggling crypto lending sector, particularly through decentralized finance (DeFi) applications.
According to Bloomberg reportThe speculative excitement surrounding Bitcoin has not only fueled its trade but is also spilling over into lending platforms, signaling a potential revival for this vital part of the digital currency market.
The exchange rate of Bitcoin is going up against the dollar
Bloomberg data shows that the Bitcoin funding rate – the main traders paya so much since early June.
This rise reflects a growing appetite for leverage as Bitcoin has more than doubled in value this year, driven by hopes of integrating the cryptocurrency into. mainstream finance under the incoming Trump administration.
The resurgence of the crypto lending sector is remarkable given its tumultuous past. In 2022 and early 2023, many lending platforms faced serious challenges, with several market players announcing bankruptcy following questionable lending practices.
However, recent data indicates that crypto lending activity has almost tripled in the first nine months of 2024 compared to the previous year, although it is still behind the high levels of 2021.
“Demand for Bitcoin-backed loans has increased because the former are looking to use their wealth for purchases such as homes and cars,” said Mauricio Di Bartolomeo, co-founder of Ledn, a crypto. lending platform. He noted that many new entrants use their assets to make long-term investments.
The Crypto Lending Sector is Reviving
Lenders play a vital role in the cryptocurrency ecosystem by providing liquidity and enabling transactions naturally volatile market. However, traditional banks are still reluctant to extend credit to crypto market participants due to ongoing regulatory uncertainty.
This gap has allowed crypto lenders to thrive, especially during the 2021 bull market, when companies like Genesis and BlockFi became major players in providing capital to borrowers.
The shadow of past failures still looms, as evidenced by the recent guilty plea of Alex Mashinsky, the now-deceased co-founder of the Celsius Network, who admitted to fraud charges. Celsius collapsed in 2022, leaving more than $1 billion in debt and a complex bankruptcy process to repay creditors.
Despite the recovery in lending activity, the current levels are still much lower than in 2021. According to Galaxy Research, loans through DeFi applications and centralized providers stood at about half of the number recorded in the first nine months of 2021, although it has reached $36.8 billion – a threefold increase from the same period in 2023.
Platforms Defi most notably, managed nearly $31 billion in loans, while centralized providers accounted for $5.8 billion. This is reflected in the total value locked in Ethereum-based lending apps, which has recently crossed the 2021 peak, according to data from DeFiLlama.
While leverage in the market is indeed rising, there is still some caution. Many market participants remain wary of lending after the turmoil of the previous cycle when some lenders offered unsustainable double-digit returns on unsecured loans.
Institutional lenders, in particular, are taking a more conservative approach. Jeffrey Park, a portfolio manager at Bitwise Asset Management, noted that while his firm had previously lent to crypto lenders, it has since abandoned that strategy due to decrease in consumer interest in high risk product opportunities collapse after FTX.
However, some centralized exchanges and brokerages are stepping in to fill the lending gap. Galaxy Digital, for example, reported a 20% increase in its loan book from mid-August, reaching an average of $863 million for the third quarter.
At the time of writing, BTC was trading at $99,130, up 1.5% in the last 24 hours.
Featured image from DALL-E, chart from TradingView.com
Source link
