Gibraltar-based bank introduces Bitcoin-backed loans, offering up to $1M in crypto credit

Xapo Bank declared that its members can now access loans and lending backed by Bitcoin, enabling them to use their holdings as collateral.

The newly launched service could enable customers to purchase up to $1 million in debt backed by Bitcoin, excluding UK and Australian clients.

In addition, it will allow qualifying members to keep their Bitcoin as a long-term financial instrument while providing several features to safeguard members’ investments and facilitate borrowing.

Xapo Bank is providing its members access to Bitcoin-backed lending and loans

With Bitcoin’s increasing acceptance in the U.S., Wall Street companies such as Cantor Fitzgerald have established their own Bitcoin financing businesses. As a result, the investment bank has announced partnerships with Anchorage Digital and Copper.co to support its expanding global Bitcoin financing business.

During the cryptocurrency boom of the pandemic, Xapo became one of the first banks to open a physical headquarters in Europe, settling in the British overseas territory of Gibraltar.

Last year, the company secured regulatory approval in the UK. Afterwards, it engaged its customers by providing them with interest-bearing Bitcoin accounts and other banking services.

Coinbase had previously partnered with Morpho Labs to offer a Bitcoin-backed loan service that let its U.S. users borrow up to 100,000 USD coins. However, it discontinued the issuance of Bitcoin-backed loans in 2023.

The companies have since re-established their services using the decentralized lending protocol Morpho. Asset managers are also using decentralized finance (DeFi) to earn a yield on Bitcoin-backed loans.

In contrast, Xapo represents a centralized entity. According to a statement, bank customers should obtain approval first, and their linked Bitcoin is stored “in a vault until the loan is paid back” over a timeframe that can extend as much as a year.

Seamus Rocca, CEO of Xapo, believes many longstanding holders of Bitcoin distanced themselves from crypto-asset-backed lending after seeing predatory lending and faulty products. “That’s why we’re doing things differently,” he said.

Coinbase’s Bitcoin-backed loan service allows users to borrow up to $100,000 in USDC

Except for residents of New York, all Americans can use this service, which is based on the Base, Coinbase’s Ethereum layer-2 network. Borrowers need to over-communicate their loans, where Bitcoin collateral will be automatically converted to  Coinbase Wrapped Bitcoin (cbBTC), a token backed 1:1 by Bitcoin held in Coinbase custody.

Coinbase’s loans help users get liquidity without selling their Bitcoin and triggering taxables. Max Branzburg, the company’s vice president, stated that this product aims to improve Bitcoin’s use case in a decentralized environment.

It streamlines the loan process, enabling borrowers to receive loans without credit checks or fees. Repayment terms are flexible; however, borrowers need to exercise caution and monitor the value of their collateral to avoid liquidation.

As a result, bitcoin-backed loans have become popular among investors who wish to take advantage of liquidity while retaining their holdings. According to estimates by HFT Market Intelligence, the crypto-backed loan market will increase from $8.5 billion in 2024 to $45 billion by 2030.

Now that Bitcoin is becoming mainstream, institutions and DeFi protocols are monitoring cryptocurrency lending opportunities more closely. Rivals such as Ledn have also experienced demand for similar products.

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