Interest in Bitcoin-backed loans returns: Will TradFi join this time?
On January 16, Coinbase announced its service allowing US users to borrow USDC using Bitcoin as collateral. This service integrates elements of both Centralized Finance (CeFi) and Decentralized Finance (DeFi) by converting Bitcoin into wrapped Bitcoin (cbBTC) for loan management via the Morpho protocol. Despite Bitcoin-backed loans existing since 2017, growing interest in this market is evident. An August 2024 report estimated the Bitcoin loan market to be $8.6 billion, projected to grow to $45.6 billion by 2030. Traditional finance, represented by firms like Cantor Fitzgerald, is now entering the Bitcoin lending sector, particularly after the recent repeal of the SAB 121 accounting rule, which previously hindered banks from offering such services. Users can leverage their Bitcoin to access liquidity without selling, potentially utilizing strategies like 'buy, borrow, die.' However, risks remain, given past failures of firms like Celsius and BlockFi. As banks explore this market, a more robust Bitcoin loan landscape could emerge, improving conditions for investors.
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