Given the recent focus on the crypto lending market and the concerns regarding the effect the Bitcoin contango may be having on some of these lenders, the recent report from Graychain, a startup looking to bring credit assessment to the crypto space, could not be timelier. According to the report, an estimated $4.7 billion has been lent out in crypto loans, but only $86 million has been earned back in interest. That’s a 1.8% return, despite the fact that crypto loans typically cost borrowers 6-10% on an annual basis. The bulk of borrowing has been done by private lenders, which generally offer better percentage rates. While these companies dominate the sector, they seem to have a very high turnover. For example, it’s likely that many of these short-term loans from private lenders such as Celsius reflect speculative activity. In short, the crypto lending market is growing fast but its profitability is yet to match its ambitions.
Looking at the market, having squeezed back into the $10.5k area, Bitcoin has since drifted back below $10k, while Ethereum failed to obtain enough momentum on the short squeeze and peaked around $190 before drifting back to the low $180s. While the curve still remains in contango, the delta has narrowed significantly this week, especially on the Ethereum curve where the spread to the front month is under $1. As pointed out in the past, factually speaking, there are several reasons that will cause the contango to collapse. For one, interest rates would have to decrease a large amount (indirectly applicable in crypto but worth keeping an eye on lending market). Another reason for such a move is so-called “delivery concern.” When a producer, dealer, or speculator is short the front month, come expiration it has the choice whether to make delivery or not. If not, the holder essentially needs to cover shorts and lease/borrow the asset from someone else and/or roll their shorts to a back month.
In other news, Coinbase Custody has reportedly acquired Xapo’s institutional business to become the world’s largest crypto custodian by assets under custody. According to the announcement, the new acquisition puts Coinbase Custody’s AUC at $7 billion. Elsewhere, Celsius Network, a crypto lending and borrowing platform, has integrated Bitcoin.com’s trading platform into its Celsius App to simplify cryptocurrency holders’ access to financial services. Users can now purchase a range of major cryptocurrencies including Bitcoin (BTC), Bitcoin Cash (BCH) and Ether (ETH) through the Celsius App using Bitcoin.com’s crypto trading platform.
Finally, the CEO of crypto index fund provider Bitwise Asset Management said that he is still positive about the prospects of United States regulators approving a crypto exchange-traded fund (ETF). As a reminder, earlier this week the regulator postponed its decision on the proposal – together with two other crypto ETF proposals – with the deadline for the ruling currently set for Oct. 13. Notwithstanding these developments, Horsley remained positive, noting that the SEC has been relatively open about the reasons behind its delay and articulated the nature of its concerns. Even though Bitwise has made multiple rounds of different ETF applications, he noted there has been a huge amount of progress in the last twelve months.
Thank you for reading,
The BeQuant’s Analytics team