The recent rise in the price of bitcoin, which surpassed $100,000 for the first timeis creating ripples in the long-struggling crypto lending sector, particularly through decentralized finance (DeFi) applications.
According to a Bloomberg <a target="_blank" href="https://www.bloomberg.com/news/articles/2024-12-06/crypto-lenders-emerge-from-the-ashes-of-last-speculative-bubble” target=”_blank” rel=”noopener nofollow”>reportThe speculative enthusiasm surrounding bitcoin has not only revitalized its trading but is also spreading to lending platforms, indicating a possible resurgence of this critical segment of the cryptocurrency market.
bitcoin Funding Rate Increases Tenfold
Bloomberg data shows that bitcoin's funding rate (the premium traders pay to hold long positions in perpetual futures) has skyrocketed in November, increasing more than tenfold since early June.
This rise reflects a growing appetite for leverage as bitcoin has more than doubled in value this year, driven by optimism around the cryptocurrency's growing integration into conventional finance under the next Trump administration.
The revival of the crypto lending sector is noteworthy given its tumultuous past. In 2022 and early 2023, many lending platforms faced significant challenges, with numerous market players filing for bankruptcy following questionable lending practices.
However, recent data indicates that crypto lending activity has nearly tripled in the first nine months of 2024 compared to a year ago, although it is still behind 2021 highs.
“Demand for bitcoin-backed loans has increased as those who previously held them look to use their wealth for purchases like houses and cars,” said Mauricio Di Bartolomeo, co-founder of Ledn, a cryptocurrency. lending platform. He noted that many new entrants are leveraging their assets for long-term investments.
crypto Lending Sector Reactivates
Lenders play a crucial role in the cryptocurrency ecosystem by naturally providing liquidity and facilitating trading. volatile market. However, traditional banks remain hesitant to extend credit to crypto market participants due to current regulatory uncertainties.
This gap has allowed crypto lenders to flourish, particularly during the 2021 bull market, when companies like Genesis and BlockFi became key players in providing capital to borrowers.
The shadow of past failures still lingers, as evidenced by the recent guilty plea of Alex Mashinsky, co-founder of the now-defunct Celsius Network, which accepted to charges of fraud. Celsius collapsed in 2022, leaving behind more than $1 billion in debt and a complex bankruptcy process to pay 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 stood at approximately half the volume recorded in the first nine months of 2021, although they reached $36.8 billion. —a three-fold increase over the same period in 2023.
DeFi Platforms are particularly notable as they manage nearly $31 billion in loans, while centralized providers accounted for $5.8 billion. This is reflected in the total value locked in ethereum-based lending apps, which recently surpassed its 2021 peak, according to data from DeFiLlama.
While leverage in the market is increasing, some caution remains. Many market participants are still wary of lending after the turmoil of the previous cycle, when some lenders offered unsustainable double-digit yields on unsecured loans.
Institutional lenders, in particular, are taking a more conservative approach. Jeffrey Park, portfolio manager at Bitwise Asset Management, noted that while his firm previously lent to cryptocurrency lenders, they have since abandoned that strategy due to declining client interest in high risk return opportunities post-FTX crash.
However, some centralized exchanges and brokerages are stepping in to fill the lending gap. Galaxy Digital, for example, 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 last 24 hours.
Featured image of DALL-E, chart from TradingView.com
