Coinbase launches loan service backed by Bitcoin (BTC)

Crypto exchange giant Coinbase will very soon allow some of its American customers to take out fixed-rate loans for an amount of up to 30% of their Bitcoin (BTC) holdings through its new service called “Borrow”.

The loan limit is set at $20,000 or approximately € 17,000 and Coinbase will apply a fixed annual rate of 8%, for a maximum repayment period of one year. The service is expected to launch this fall.

At this time, the service is only available in 17 states. However, Coinbase is considering obtaining licenses in other states and countries in order to expand its lending service. A waiting list is already in place, along with the following teaser:

Have you ever needed money for something urgent, like repairing a car or your house? In the past, you could have sold bitcoin for this and suffered taxable gains or losses. Today that is over.

Regarding regulatory checks, Coinbase clarified that customers will not have to fill out a particular form or go through a credit check. Borrowers will be able to receive their loans within two to three days .

Customers can use Bitcoin-backed loans in a number of ways depending on their financial needs, including for large expenses or to help manage higher-interest personal loans or debt.

Added Max Branzburg, product manager at Coinbase.

For Coinbase, adding such a service will help its customers keep their holdings on its platform instead of moving them elsewhere.

How is Coinbase positioned in this market?

Compared to the competition, Coinbase’s offer is doing quite well even if other platforms are more advantageous for the borrower. The most important component for the customer is undoubtedly the annual interest rate of his loan.

Let us observe what the competition offers by taking into account the same parameters: a loan of 20,000 dollars; same loan-to-value ratio of 30% (or close rate); use of Bitcoin as collateral; reimbursement within a maximum of one year.

The competitor Crypto.com also has an annual rate of 8%, but you have to stake at least 10,000 CRO. Otherwise the rate is 12%.

The BlockFi platform applies an interest rate of 7.9% with the aforementioned parameters (loan-to-value ratio of 35%). Its service also supports Ether (ETH) and Litecoin (LTC). Coinbase is therefore very close to BlockFi’s offering.

However, if you take a look at Celsius Network’s lending service, Coinbase falls far short of what it offers. Indeed, Celsius Network imposes an interest rate of 2.77% or 3.95% , depending on whether the repayment is made with the CEL token or in fiat money (loan-to-value ratio of 33%).

Let us add that a loan via Celsius Network is much more customizable. More than 25 cryptocurrencies can be used as collateral assets; the repayment term can be up to 3 years with the amount of the loan capped at $ 1 million.

However, it should be clarified that unlike other platforms, Coinbase claims that it will not reinvest collateral elsewhere and that it will keep BTC in its wallets.

Currently reserved for a handful of its customers in the United States and only with Bitcoin as a collateral asset, Coinbase’s new lending service is a bit weak against the competition. The exchange will need to quickly support more crypto assets as collateral and offer other loan-to-value ratios.

However, with its reputation and rock-solid compliance with regulators, Coinbase’s service will undoubtedly attract many users.