Xapo Bank Unveils Bitcoin-Backed Loan Service
In a groundbreaking move, Xapo Bank has launched a novel loan service allowing clients to leverage their Bitcoin holdings as collateral. This innovative offering signifies a significant advancement in integrating cryptocurrency into mainstream financial services. However, this service is currently unavailable to clients residing in the UK and Australia.
Wall Street Giants Embrace Bitcoin Financing
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Known for its pioneering spirit, Xapo Bank has solidified its status within traditional banking circles, especially during the pandemic-induced Bitcoin surge. The bank established a physical presence in Gibraltar, a British overseas territory, marking its commitment to the European market. As the appeal of cryptocurrency grows in the United States, established financial institutions are entering the fray. Cantor Fitzgerald, a prominent financial entity, has ventured into Bitcoin financing by partnering with crypto firms Anchorage Digital and Copper.co, cementing its role in the expanding global Bitcoin market. Following regulatory approval in the UK last year, the bank began offering interest-bearing Bitcoin accounts alongside its traditional banking services.
Coinbase Reinvents Bitcoin Loans with Strategic Collaboration
Coinbase, a major player in the cryptocurrency arena, has reintroduced Bitcoin-backed loans through a collaboration with Morpho Labs, harnessing decentralized lending protocols. This reimagined service allows US customers, except those in New York, to secure loans up to $100,000 denominated in USDC stablecoins. Max Branzburg, Coinbase’s vice president, emphasized the product’s goal to enhance cryptocurrency utility within a decentralized context. The service simplifies borrowing by removing credit checks and fees, although borrowers must monitor their collateral value to prevent liquidation risks. Operated on Base, Coinbase’s Ethereum layer-2 network, the service automatically converts crypto collateral into Coinbase Wrapped Bitcoin (cbBTC), a token supported one-to-one by Bitcoin in Coinbase’s custody.
Exploring Centralized vs. Decentralized Crypto Lending
The crypto lending landscape features varied approaches. While some platforms favor decentralized finance (DeFi) protocols, Xapo Bank adopts a more conventional, centralized method. Clients must obtain bank approval, and their Bitcoin is securely stored until the loan is fully repaid, with loan durations extending up to one year. Seamus Rocca, CEO of Xapo, highlighted the hesitancy among long-term crypto holders due to previous experiences with “predatory lending and defective products.” Rocca affirmed Xapo’s commitment to offering a distinct and trustworthy service. This approach primarily aids Bitcoin investors in accessing liquidity without liquidating their assets, thereby avoiding taxable events.
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