BitGo, one of the largest and oldest custodians for digital assets, is joining the fast-growing business of lending out bitcoin and other cryptocurrencies to big investors. The Palo Alto-based company announced Thursday it is now offering institutional digital asset lending services.
Founded in 2013 by CEO Mike Belshe, BitGo started testing the new service a few months ago to big investors and has already racked up about $150 million in open loans, according to Nick Carni, a former Deutsche Bank executive who is overseeing the effort as BitGo’s head of financial services. The new service is initially targeting BitGo’s existing custody clients, the company said in a statement.
BitGo is currently lending bitcoin, ether, litecoin and stablecoins, Carni said in an interview. The company also will lend out government-issued currencies including U.S. dollars to investors who post cryptocurrencies as collateral.
With big banks still mostly eschewing the 11-year-old digital-asset industry, a new breed of lenders is stepping into the void to meet the demand, partly from investors seeking to amplify returns on their cryptocurrency bets, through the use of leverage.
The business model of cryptocurrency lenders works much like that of traditional banks: Take in assets from depositors, pay them interest and then make loans at a higher interest rate. The lender can seize the collateral to pay off the loan if the borrower defaults.
“I’m running a matched spread and making a profit on that,” Carni said. “This is no different from the way banks do it.”
BitGo’s new push comes as cryptocurrency lenders have reported runaway growth compared with traditional banks.
New York-based Genesis Trading, owned by the crypto-focused investment firm Digital Currency Group, said in January that its lending book swelled by 21 percent in the fourth quarter alone to $545 million, driven by demand from big investors as well as aggregators of smaller loans in Asia and Europe….