In brief

  • The lending market is expected to grow in the next few years.
  • The amount of Bitcoin used as collateral is set to grow significantly.

The amount of Bitcoin used as collateral in the lending markets could reach 1 million within the next three years, according to a report by Arcane Research.

Borrowing and lending are common financial tools in the traditional financial ecosystem. Recently several companies, including BlockFi, Genesis, Nexo and Celsius Network, have started providing these services but with cryptocurrencies instead. The firms, which saw remarkable growth in 2020, let investors lend out their funds and receive interest for doing so.

A huge pile of Bitcoin. Image: Shutterstock.

Bitcoin Lending Services Exploded in 2020: Here’s Why

Bitcoin lending services took a firm grasp on the cryptocurrency market this year, with the top three firms growing their holdings by an average of 734%. The availability of traditional financial services like lending and borrowing—along with more institutional-focused means of custody and ways to get exposure to cryptocurrencies—that really enabled institutions to enter the Bitcoin market this year. And unsurprisingly, such firms have seen surging demand. “There has been a massive increase in i...

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8 min read
Tim Copeland

The amount of BTC used as collateral in the lending market is estimated to be around 420,000 BTC ($20.7 billion). Assuming that 50% of the collateral is in Bitcoin, the report speculates that it could reach 800,000 Bitcoin ($39.6 billion) in two years, up to 1 million BTC ($49.5 billion) within three years.

Bitcoin lending market growth
1 million Bitcoin could be used as collateral in the lending market by 2023. Image: Arcane Research

The report added that the growing popularity of the lending market will likely drive demand for Bitcoin and make a positive impact on the price of the largest cryptocurrency.

Currently, firms offer high rates, around 5-6% on the main cryptocurrencies and as high as 12% on stablecoins. But, the report warns that these high rates might fall as more liquidity is provided.

The report draws attention to the important role Bitcoin plays in the DeFi sector, where it is used in a number of so called “wrapped protocols,” as well as in the stablecoin space where Bitcoin is leveraged for collateralized derivatives instruments.

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