Haydn Franklin, Wednesday 25th March 2020, 4:40 PM CET
Crypto Lending Markets

The Covid-19 Pandemic has created numerous ripple effects throughout financial markets worldwide, which is causing adverse effects to the global economy. Every industry is determining new strategies to compensate with the WHO-declared pandemic. Financial firms & brokers are feeling the most significant impacts of Covid-19, with markets diving in valuations. Investors have demanded that their respective brokers and exchanges create contingency plans to account for the novel coronavirus. This applies to the cryptocurrency industry as well, which was initially believed to be a haven during Covid-19. Instead, they’ve also dealt with the various effects surrounding Covid-19. Analysts are predicting the outcomes of these financial postponements. However, nobody can anticipate what’ll happen by year-end. It’s expected that multiple brokerages will terminate their cryptocurrency exchanges to account for unsustainable losses.

The cryptocurrency lending sector has been affected by the recent declines in market activity. Brokers operating in this space have provided a unique service for investors, allowing for clients or investors to receive blockchain-based loans. Those loans are paid back over a prolonged period with minimal interest. Sustainable business models like cryptocurrency lending have enabled multiple brokerages to avoid the losses associated with splitting Bitcoins Crypto lenders avoided shutting their doors during the 2018 & 2019 BTC Crashes. Those wanting to invest during lowered valuations but cannot use their funds are best associated with these loans and most likely to be approved.

Financial analysts predict that the overwhelming economic crisis located worldwide will plunge cryptocurrency markets to all-time lows. The implications felt from this downward spiral will prompt minimal loans from investors. Subsequently, it’d prompt the closure of these cryptocurrency lenders. However, other analysts believe growth will be seen through volatility. These claims have viable proof, with operators like Plus500 witnessing an increase in their client activity. Reporters recently interviewed Alex Mashinsky, the Founder and Chief Executive Officer at Celsius. This lending firm provided insight onto their future operations.

The Interview Begins

Below you’ll find a series of interviews conducted with various individuals in the cryptocurrency & blockchain market. They’ve assisted our readers and the overall crypto community with insight onto the future conditions of this market space. These interviews begin with Alex Mashinsky, who stated: “We expect revenues to grow as a result of the volatility, not as a result of the outbreak. Our firm has been growing revenues steadily as we doubled our customers and deposits in the past few months.”

Alex Mashinsky

Not all statements made by these cryptocurrency leaders were gained through reporters. Additional members in this community made statements through social media platforms like Twitter. This included Zac Prince, the CEO of BlockFi. He revealed: “In extremely volatile markets, we generally see heightened activity across our product suite. This includes trading, USD loans, crypto lending, and interest accounts.”

The concept that lending brokerages will see increased valuations throughout 2020 was maintained through Rob Odell. The CPO and Co-President of Salt Lending spoke with reporters regarding this subsidiary marketspace. It was noted that unlike multiple other markets within the cryptocurrency industry, lending was created under different circumstances and that financial outcomes during low-periods are often heightened. The official statement from Rob Odell was made during a recent press conference regarding economic statuses of their most significant contracts. The statement read: “Crypto-backed lenders are likely faring better than other crypto businesses during the global pandemic, as they offer a way for crypto holders to get cash without having to sell their crypto assets.”

Those remarks from Rob Odell continued, mentioning that their wealth of loaning capabilities exceeds past the cryptocurrency industry. His comments noted: “Amid a market crash, crypto-backed lenders can meet customer needs by offering additional liquidity. While exchanges also offer liquidity, crypto-backed lenders are a more appealing option for those customers who want to maintain ownership of their crypto assets and use them as collateral for a cash loan rather than sell them. The volatility has been a good stress test for the entire crypto lending industry.”

Interview Part II

The Chief Executive Officer of CoinShares, Jean-Marie Mognetti, spoke with media officials through Skype while committing to self-isolation measures. He noted that disruption in the cryptocurrency lending market hadn’t been seen during this pandemic. Financial chaos often benefits brokerages or firms that lend substantial funds. The interview began with Jean-Marie Mognetti being asked how he felt about this situation, quoting both the retail and institutional factors with cryptocurrency trading.

Those remarks read: “It has been a good stress test for the entire crypto lending industry. Everyone has been very communicative about risk and risk parameters and managing collateral and liquidity carefully. In the institutional lending space, where we operate, we didn’t see any large lenders or borrowers not matching their obligations. In the retail space, no big accidents were reported, so presume that this down-swing was managed without much incident.”

The shifting in how loans are being acquired is being altered. Jean-Marie Mognetti provided insight on these alterations. He stated: “The markets stayed very active during the last two weeks with a rotation from mainly USD and stablecoins loans against crypto collateral to a more distributed two-sided market with borrowing demand for both cash and equivalents and crypto. We see more interest in crypto lending, where interest rates range from 8 – 10% for cash, and 4 – 8% for crypto. It’s much more attractive to lend in crypto and digital assets markets than in the traditional markets, especially given the lower risk and more robust collateral management procedures.”

Mognetti Explains Liquidity Crunches

The challenges surrounding financial markets in the cryptocurrency & blockchain space is forcing readjustments to operational strategies. These alterations are forced through Government-imposed regulation, including the United States Federal Reserve announcing interest cuts. Competing against the USFR isn’t an easily accomplished task, prompting lending firms to react with new services or interest rates.

Jean-Marie Mognetti continued expressing his thoughts throughout the interview. He explained that markets are trying to establish themselves in the perfect spot for lending, which has become challenging with the recent interest rates declining to zero. It’s prompted for recent activity in cryptocurrency markets to fluctuate, inducting a liquidity crunch onto lenders. Mognetti noted that these crunches have been weathered and provided minimal effects on the overall market space.

There are multiple reasons why the liquidity crunch was prompted, with the collateral rules being strict and hard to overcome. Cryptocurrency lenders have two available options for collateral, those being Bitcoin and Ethereum. Other brokerages can use a multitude of securities for insurance. Liquidity crunches were required to ensure the safety of lending firms.

Cross & Collateral Margining

Interviews switched the subject over to cross-margining potentially being implemented by lenders. These firms don’t provide this service, which allows for excess in margined funds to be moved from one account to another. This is accomplished to meet the maintenance requirements for margins, with Jean-Marie Mognetti noting that this feature would make risk exposure drastically harder to calculate and manage. He stated: “Collateral margining rules are enforced electronically, meaning there is less need for oversight and intervention. So long as parameters are set correctly, much can be automated.”

Japanese Yen

Jean-Marie continued those remarks by mentioning: “The time allowed between margin call and liquidation are much shorter than in traditional markets. It varies between 6 to 12 hours. Instead of the much longer 24 to 48 hours in the repo market. Also, crypto lending markets operate 24/7. If you get margin called on a Sunday at 2 pm, you can post collateral immediately, or the lender can liquidate your collateral immediately and programmatically based on their risk parameters. There are more opportunities to obtain leverage in bitcoin and cryptocurrencies than any other commodity.”

It should be mentioned that for all strengths displayed throughout the cryptocurrency lending market, there has been the same level of vulnerabilities. Stress tests are implemented during this historical period, indicating that the cryptocurrency market itself is experiencing similar inconsistencies. Jean-Marie provided explanations on the high’s and lows throughout the last week. He noted: “There are more opportunities to obtain leverage in bitcoin and cryptocurrencies than any other commodity. Whatever model people were using to apply leverage to their crypto holdings was blown out in a big way last week, which means there’s deleveraging, selling, and de-risking.”

He pointed out that leveraging in the cryptocurrency lending market can often create fluctuations. That’s become an overwhelming level of loans are implemented during a destructive period in the market. This includes traders moving their cryptocurrencies into stablecoins to account for a prolonged safety in these markets. Mognetti mentioned: “Leveraging in this space can ratchet up or down very quickly. We see this with heavy rotation from cryptocurrencies into stablecoins. As investors sold crypto for stability in the form of digital dollars. The flow out of stablecoins back into crypto can happen just as quickly, which tends to exacerbate swings in the crypto space.“

Jean-Marie Mognetti continued his remarks by expressing: “This fluidity is unique to crypto markets, their 24/7 nature, and the ability to exchange assets instantly on the same underlying settlement network. It’s something we don’t see in other lending markets. The entire industry demonstrated an impressive resilience against a 50% or greater swing in price. The most impressive aspect of the last two weeks outside of the price move is certainly the resilience of the overall digital asset backend infrastructure.”

Market Crash Disruptions

The cryptocurrency industry has crashed throughout the last two weeks, causing disruptions to the infrastructure of all subsidiary markets in this space to feel Covid-19s adverse effects. Mognetti explained that these disruptions began before the pandemic broke out globally. These changes became on December 17th when market corrections were implemented. Jean-Marie noted: “It caused all of the major platforms to have connectivity failures, one after another. This time, except for a few smaller platforms going offline, the entire industry demonstrated an impressive resilience against a 50% or greater swing in price.”

Financial Impacts Coronavirus, Crypto Lending Markets

Mognetti also explained the increased resilience seen throughout cryptocurrency markets. He mentioned: “Platforms scaling to be able to handle concurrent connections and upgraded order matching engines which can handle much more capacity—Amazon Web Services power many of these exchanges. The big winner is Amazon, which is racking up fees. Transparency and communication are essential, especially in times of crisis.”

Rob Odell Closes Out the Interviews

Technological solutions are one of the multiple factors that’ll be required moving forward with the Covid-19 Pandemic. This was expressed by Rob Odell, the CPO and Co-President of Salt Lending. He ensured that internal operation supports the flexibility required to guarantee strengthening products and communications. The Chief Product Officer believes this to be essential for future growth. Explaining his remarks, he spoke with reporters to close out the interviews.

Rob Odell stated: “Brokers that have been able to mobilize quickly to adapt the way they operate effectively. Businesses that have been able to leverage a fully remote workforce to maintain day-to-day operations with minimal impact on the business have no doubt fared better than those that require the physical presence of employees or customers to conduct business. Businesses with quality customer service and an empathetic support team have likely fared well, as they have been able to help clients manage stress and work through any issues stemming from market volatility, all while protecting their business.”

Those that handle the Covid-19 Pandemic situation correctly within the cryptocurrency lending market will be presented opportunities over a prolonged period. It’ll be the best way to ensure long-term relationships with clients. Bob Odell mentioned: “When businesses help customers when they need it most, customers remember the experience and it builds brand loyalty over the long term. Similarly, those that have offered assurance to customers along with alternative tools and ways to take productive actions during this time to minimize frustration have fared best, given the fact that transparency and communication are essential, especially in times of crisis.”

Author: Haydn Franklin

Hayden joined whichbroker.com in March 2019. He previously held positions at leading US facing financial news outlets. Hayden's focus is primarily Crypto and Forex news at whichbroker.com, however he is also whicbrokers long form content specialist leading him to write longer posts with an investigative angle. Hayden gradutated from the University of Chicago. Haydn Franklin can be contacted at [email protected], View all posts by Haydn Franklin

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