Bitcoin’s recent price surge has surpassed this $100,000 for the first timeis causing ripples in the long-struggling crypto lending industry, especially through decentralized finance (DeFi) applications.
According to a Bloomberg reportThe speculative frenzy surrounding Bitcoin has not only boosted trading but is also expanding to lending platforms, signaling a possible revival of this crucial segment of the cryptocurrency market.
Bitcoin Funding Rate Increases Tenfold
Data from Bloomberg shows that Bitcoin’s funding rate – which premium traders pay to hold long positions in perpetual futures – shot up in November and has increased more than tenfold since early June.
This increase reflects a growing demand for leverage as Bitcoin has more than doubled in value this year, driven by optimism surrounding the cryptocurrency’s increasing integration into the cryptocurrency space. regular finances under the incoming Trump administration.
The resurgence of the crypto lending industry is remarkable given its tumultuous past. In 2022 and early 2023, many lending platforms faced significant challenges, with numerous market players going bankrupt following questionable lending practices.
However, recent data shows that crypto lending activity nearly tripled in the first nine months of 2024 compared to the previous year, although it still lags behind 2021 highs.
“Demand for Bitcoin-backed loans has skyrocketed as those who previously held on to their wealth want to use their wealth for purchases such as homes and cars,” said Mauricio Di Bartolomeo, co-founder of Ledn, a cryptocurrency company. credit platform. He noted that many newcomers are using their assets to make long-term investments.
Crypto lending sector revives
Lenders play a crucial role in the cryptocurrency ecosystem by providing liquidity and facilitating trading naturally volatile market. However, traditional banks remain reluctant to lend to crypto market participants due to ongoing regulatory uncertainties.
This gap has allowed cryptocurrency lenders to flourish, especially during the 2021 bull market, when companies like Genesis and BlockFi became major players in providing capital to borrowers.
The shadow of past failures lingers, as evidenced by the recent guilty plea of Alex Mashinsky, co-founder of the now defunct Celsius Network, who admitted to fraud charges. Celsius collapsed in 2022, leaving more than $1 billion in debt and a complex bankruptcy process to repay creditors.
Despite the recovery in lending activity, current levels remain significantly lower than in 2021. According to Galaxy Research, lending through DeFi applications and centralized providers amounted to approximately half of the volume recorded in the first nine months of 2021, although it was $36, has reached 8 billion. – a threefold increase compared to the same period in 2023.
DeFi platforms are particularly notable, managing nearly $31 billion in loans, while centralized providers account for $5.8 billion. This is reflected in the total value captured in Ethereum-based lending apps, which recently surpassed the 2021 peak, according to data from DeFiLlama.
While market leverage is indeed increasing, some caution remains. Many market participants are still wary of lending after the turmoil of the last cycle, when some lenders offered unsustainable double-digit yields on unsecured loans.
Institutional lenders in particular take a more conservative approach. Jeffrey Park, portfolio manager at Bitwise Asset Management, noted that while their company previously made loans to cryptocurrency lenders, they have since abandoned that strategy due to reduced customer interest in cryptocurrencies. high-risk return opportunities after the collapse of the FTX.
However, some centralized exchanges and brokers are stepping in to fill the lending gap. For example, Galaxy Digital reported a 20% increase in its loan portfolio since mid-August, reaching an average of $863 million for the third quarter.
At the time of writing, BTC was trading at $99,130, up 1.5% in the past 24 hours.
Featured image of DALL-E, chart from TradingView.com