Crypto lenders are going through their first ever real crisis. The digital currency-backed loans industry has been on a purple patch lately until earlier this week when the value of BTC dropped by a massive 40%. This resulted in crypto lenders demanding for supplementary collateral from their client.
On March 13, the CEO of crypto lenders Genesis Capital, Michael Moro noted that the firm has already asked their pool of about 40 clients; to supplement over $100 million in collateral. On the other hand, their competitors Celsius network has made margin calls in the hundreds of millions. The lending firm has over 200 institutional clients to its books who make up figures amounting from $400 million to $600 million at a particular time.
Back in 2019, crypto lenders saw their businesses thriving as some holders sought to bag on their holdings. Furthermore, others were after raising fiat without having to cash out on their cryptocurrencies; while market markers secured loans to close on their trades. The event may have boosted liquidity and price discovery of virtual currencies; however, jeopardizing the system.
Crypto lenders Genesis not planning to issue loans
In particular, Genesis Capital is not thinking of issuing collateral loans below 100% until the market cools, as per the CEO. As the firm tries to answer the question of what interest rates should look like in an eruptive period; the Digital Currency Group is hiking the essential security to secure loans from about 103% to almost 120%; for bitcoin-backed loans. If the volatility levels do not settle, the security percentage could elevate even more.
Crypto lenders reaping as market sheds blood
On the other hand,the Celsius Network enjoyed the most fruitful day durith the thursday’s blood bath. The crypto lender had elevated the borrowing percentage but loaned out more than ever while charging higher than ever before.
For instance, under standard conditions, the normal fee of loaning out for Ethereum is between 15% to 20%; and even 4-5% during the most tranquil of moments in the market. Currently, the fee is about 250%. Celsius Network CEO noted that the company will limit the loans that it provides.