Silvergate Capital gained close to 50 new digital currency customers in the fourth quarter of 2019, while its traditional banking was generally flat. While traditional lending struggles with slow growth due to maturity as well as low interest rates, a niche lending business is experiencing huge momentum, albeit on much lower overall volume.
Here are ten signs that the business is strong, and could be poised for rapid growth over the next few years.
- JP Morgan reported that their loan business increased by 2% to just under $1 trillion last quarter. That is not bad: But Genesis, a trading firm that lends money alongside cryptocurrencies increased by 21 percent in the same time period. Genesis is based in New York, but a lot of the loan action comes from Asia and Europe.
- Competition is minimal in the lending world of cryptocurrency compared with the traditional banking industry. Traditional banks are hesitant to compete in this lending sector due to risk management and strict regulation. Many banks have calculated the potential liability is too high, even if traditional risk assessment metrics might argue that it is worth it.
- Borrowers are in high supply compared with the outlets that will allow loans in the form of bitcoin or “stable coins.” Genesis’ lending was more than $500 million.
- Borrowers are willing to pay a premium of up to 8% even with strong credit history, and are willing to pledge their personal net worth behind the loans.
- The industry is even moving quickly to credit cards. BlockFi plans to launch a credit card with rewards in bitcoin during 2020.
- Institutional Investors are also becoming increasingly comfortable with taking out loans via crypto currency.
- While the revenue figures are nothing compared to traditional banks, the margins on loans and the growth promises no slow down over the next 3-5 years.
- It helps that Bitcoin almost doubled in value in 2019. With the January growth, the currency is up over 120% over a 13 month period.
- Potential new demand for loans could come from mining companies as well as developing countries. Both sources of borrowers promise to grow as fast as the crypto currency itself.
- As traditional banks with asset services arms continue to use blockchain technology, it will become more mainstream to hold a certain percentage of large asset pools in cryptocurrency.