“A lot of my holdings are in cryptocurrency, and it took me almost two months to get a mortgage,” he told The Globe and Mail.
The interest rates on such loans tend to be high – sometimes as much as 20 per cent.
In May, the Toronto-based bitcoin-lending platform Ledn raised $30-million in a Series A financing led by prominent VC backers who included Reddit co-founder Alexis Ohanian and the London-based hedge fund Kingsway Capital.
Ledn co-founder Mauricio Di Bartolomeo said a significant number of users on his platform already own a substantial amount in bitcoin, but do not want to liquidate crypto holdings to purchase a large asset such as a house or a car.
The crypto-loan industry, however, has a long way to go before it becomes competitive with regular loans.
But because the price of bitcoin is so volatile, borrowers also have to double their collateral in order to take out a loan.
Mr. Di Bartolomeo said Ledn’s system is designed such that if the price of bitcoin plunges to the point where the LTV ratio declines to 80 per cent, a client’s bitcoin is automatically sold to settle the outstanding loan.
In Canada, crypto-lenders are only regulated by the Financial Transactions and Reports Analysis Centre of Canada the country’s anti-money-laundering watchdog.
“Just to put it in perspective, if you want to consider using these products, one of the biggest risks is that the platform holding your assets could get hacked and your money could disappear.
That essentially means Silvergate does not store a user’s digital assets itself, but outsources the service to Fidelity.
“It is generally sophisticated investors that are experimenting with products like this in the world of decentralized finance, so they know exactly what they are doing,” Mr. Kim said.
Mr. Van Der Chijs, the crypto entrepreneur, says that while he is confident crypto-lending will become increasingly popular over time as cryptocurrency grows as an asset class, he often tells other crypto investors to borrow using just 10 per cent of their entire bitcoin holdings.