In a major boost for U.S. clients who want to monetize their BTC holdings, Coinbase has announced that eligible customers can soon get loans in dollars that will be collateralized by their Bitcoins. Residents of 17 of the 50 States can avail of this offer. They are Alaska, Arkansas, Connecticut, Florida, Georgia, Illinois, Massachusetts, New Hampshire, New Jersey, North Carolina, Oregon, Texas, Virginia, Nebraska, Utah, Wisconsin, and Wyoming.
Cash can be borrowed using Bitcoin held in their Coinbase account. Interested users of Coinbase have to apply first for being put on a waitlist. Once the basics of the scheme are finalized, amounts up to 30% of their BTC holdings can be borrowed. It is expected to start this fall/autumn.
Product Manager Thorsten Jaeckel in a Coinbase blog post, outlined the finer details about the loan. Apart from the loans being granted to citizens of select states only, applicants will not have to get through a credit verification as is customary with traditional loans. This crypto-backed loan does not require a log application, either. Money is in the bank within a couple of days.
The maximum limit for borrowing in USD is 30 percent of the value of Bitcoin holdings or $20,000, whichever is lower. The Bitcoin will be treated as collateral for the loan. The Annual Percentage Rate (APR) will be 8%. Borrowers must repay the principal in a year and pay interest on the loan every month.
Max Branzburg, product head of Coinbase in an emailed statement said, “Customers may use Bitcoin-backed loans in different ways depending on their financial needs, including for large expenditures like a home or car repairs, financing major occasions like a wedding, or helping to manage higher-interest personal loans or credit card debt.”
Coinbase has further clarified that the Bitcoins offered as collateral by clients will not be reinvested elsewhere but will be kept at the exchange. This is unlike some other crypto lenders who invest collateral in perpetual swaps or re-hypothecate deposits. The low-interest-rate of 8% has its advantages. Coinbase will be allowed to operate crypto loans in states that would otherwise need additional licensing requirements to curb usurious lending practices.
Crypto lenders have endorsed this Coinbase product. Joseph Kelly, CEO, and co-founder of Unchained Capital, has said that by adding a lending product, crypto exchanges ensure that customer funds remain at the crypto-exchange and are not moved elsewhere.
