The recent Bitcoin price spike, which has been over $100,000 for the first timeis creating tension in the long-struggling crypto-lending sector, especially with decentralized finance (DeFi) applications.
According to Bloomberg reportthe speculative excitement surrounding Bitcoin has not only strengthened its trading but has also spread to lending platforms, indicating a possible resurgence of this important part of the cryptocurrency market.
Bitcoin Funding Rate Increases Tenfold
Bloomberg data shows Bitcoin’s funding rate—the premium traders pay to maintain long positions in the future forever—soared in November, rising more than tenfold since early June.
This growth reflects the growing appetite for profit as Bitcoin has more than doubled in value this year, driven by the optimism associated with the growth of cryptocurrency integration. general finance under the incoming Trump administration.
The revival of the crypto-lending industry is remarkable given its turbulent past. In 2022 and early 2023, many lending platforms faced major challenges, with many market players declaring bankruptcy following questionable lending practices.
However, the latest 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 the peak of 2021.
“The demand for Bitcoin-backed loans has grown as those who previously did not want to use their wealth to buy things like houses and cars,” said Mauricio Di Bartolomeo, founder of Ledn, a crypto. lending platform. He mentioned that many entrepreneurs use their assets to make long-term investments.
The Crypto Lending Sector is revitalizing
Lenders play an important role in the cryptocurrency ecosystem by providing financing and facilitating transactions naturally. volatile market. However, traditional banks remain hesitant to extend credit to crypto market participants due to ongoing regulatory uncertainty.
This gap has allowed crypto lenders to flourish, especially during the bull market of 2021, when firms like Genesis and BlockFi became key players in providing money to borrowers.
The shadow of past failures still lingers, as evidenced by the recent case of Alex Mashinsky, founder of the defunct Celsius Network. agreed in cases of fraud. Celsius collapsed in 2022, leaving more than $1 billion in debt and a complicated bankruptcy process to repay creditors.
Despite the recovery in lending activity, current rates remain significantly lower than in 2021. According to Galaxy Research, borrowing through DeFi applications and intermediary providers stood at almost half of the volume recorded in the first nine months of 2021, although it has reached $36.8 billion. -a three-fold increase from the same period in 2023.
DeFi platforms are the most notable, holding nearly $31 billion in capital, while the average provider accounts for $5.8 billion. This is reflected in the total amount locked in Ethereum-based lending apps, which recently surpassed the 2021 peak, according to data from DeFiLlama.
Although the market power is definitely rising, there is still some caution. Many market participants are still wary of lending following the turmoil of the previous cycle when some lenders offered unsustainable double-digit yields on unsecured loans.
Institutional lenders, in particular, take a conservative approach. Jeffrey Park, a portfolio manager at Bitwise Asset Management, noted that while his company previously lent to crypto lenders, it has since abandoned this strategy due to declining customer interest. high production potential folding after FTX.
However, central exchanges and brokerages are stepping in to fill the lending gap. Galaxy Digital, for example, reported a 20% increase in its loan book since mid-August, averaging $863 million in the third quarter.
At the time of writing, BTC was trading at $99,130, up 1.5% in the last 24 hours.
Featured image from DALL-E, chart from TradingView.com
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