Recently, I spoke with Adam Reeds, CEO of Ledn about cryptocurrency-backed loans. Spoiler Alert: Adam Reeds expects this category to exponentially grow.
The first thing that he said to me, was: “Price is the best marketer.”
BTC’s price rose nearly 40% in November — fueled by the victory of pro-bitcoin Donald Trump and scores of crypto-friendly Congressional candidates. More recently, the price of BTC broke $103,000.
Ledn did approximately $1,000,000 per day in crypto-backed collateral lending (mostly BTC) for much of 2018. It allows customers to get cash loans without selling their BTC and ETH. Reeds stated that in November the amount was about 2.5 times higher.
“The last cycle institutions did the work and they said this is interesting, what about this bitcoin thing?” He said. “Things take time. You’re in an organization with several hundred or several thousand people; you don’t build consensus overnight.”
Reeds has previously noted retail investors’ FOMO (fear missing out) about crypto. The CEO said that this time, institutions are feeling the same fear.
Cantor-Fitzgerald, the financial services giant, said it would launch a bitcoin finance business in July. Howard Lutnick was recently appointed by Donald Trump as the head of the Commerce Department. He said that the company intended to start with a $2 billion loan.
Reeds estimated that the bitcoin-backed retail loan market is currently between $1 and $2 billion.
“The analogy I like is, ‘What if this was like real estate mortgages on the residential side?'” Reeds said. “Well, 60% of homes have a mortgage on them, and what if 60% of bitcoin effectively had a mortgage on it? Suddenly the market’s like $400 billion.”
“That’s with bitcoin at $95,000,” He also added. “What if bitcoin’s at $250,000? All of these things start to change.”
Continue reading to read more from Blockworks interview with Reeds.
Blockworks: What have changed since the US Election?
Reeds: We have been approaching more traditional credit funds that would, for example, finance student loan packages — things like that, that are more alternatives.
In this pullback (post-Covid), I’d say that there were a lot attractive yields. Although institutions understand that bitcoin is pretty secure, it’s still a risk. [asset] (the ones that are forward-thinking), there’s still so much attractive yield to go after…that it’s a bit challenging to say this is why you should finance bitcoin.
This is changing. As interest rates drop, I believe we are starting to see more people interested in investing because they worry that the yields will not be the same as they were over the past 24 months.
Blockworks: Why is bitcoin becoming more popular among traditional financial players?
Reeds: Clarity in regulatory matters is important. People are more concerned about the financial aspect. [are] How to pack it into traditional buckets.
It’s difficult for institutions to buy bitcoins because they have strict rules about where their capital can be placed.
What MicroStrategy is doing is really smart in saying, ‘OK well there’s a pool of capital out here that can buy convertible bonds. MicroStrategy’s equity can come from another pool of money. And if I allocate that appropriately … I can maximize how much I can attract in the markets by sizing it and pricing it accordingly.’
They’re becoming really smart at it, and we are excited to be able to tap into traditional financial structures.
Blockworks: How can institutions get involved with the crypto-space?
Reeds: Information knowledge gaps on certain basic things are the main obstacle.
Custody, for example, is not standardised. It is more accurate to say that these are the custodians of ETFs. If the [US Securities and Exchange Commission] Ledn is using BitGo.
The stamp does not say Grade-A or B. That’s exactly what [traditional finance] needs; [traditional finance] They need someone to tell them that it is okay so they can feel comfortable.
We’re making them think too much, and that adds friction. It’s the same with trading platforms or liquidity providers.
It’s just another piece of news. If you can say, ‘OK maybe it’s not regulated, but Cantor [Fitzgerald] If you say, “We do it that way,” it lends credence to your explanation.
Blockworks: What is your long-term price forecast for Bitcoin?
Reeds: What’s interesting about it is…obviously there are fundamentals around user adoption and numbers like that, but there are no sales forecasts or traditional financial analysis of bitcoin.
Then, if BTC reaches a value of $250,000. Well then $150,000. Each time we reach a new low, it then hits a step function that takes us to the next stage. The $1 million figure is not unreasonable.
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