Ledn, the Canadian centralized lending platform, has opened registration for a new product in the crypto market: mortgages with Bitcoin as collateral. Initially, only Canadian customers can enrol. Next year, residents of the United States as well.
Many Bitcoiners and owners of other crypto have built up a nice stack and would rather not sell their coins. But: "Most people that hold extensive wealth in Bitcoin still can’t utilize their assets to qualify for a mortgage at a bank,” says Ledn's co-founder and CEO Adam Reeds.
Ledn reveals that it has a waiting list for the new mortgage product. It was created on repeated requests from Ledn's customers.
How does a mortgage with Bitcoin as collateral work?
Bitcoin owners can get a mortgage worth 100% of their Bitcoin, on the condition that real estate worth an equal value is additionally used as collateral. This amounts to a mortgage of 50% of the total value to the collateral, where the total collateral is the sum of the Bitcoin and the real estate.
Customers of Ledn who take out such a loan pay monthly interest. The loan term is two years and is then reassessed. Of course, clients have to transfer the Bitcoin used as collateral from cold storage to Ledn. This is the counterparty risk they have to accept, namely that Ledn handles their private keys with care.
Ledn is a top 5 crypto lending platform. Not as big as Celsius or BlockFi but still with an estimated market capitalisation of a respectable $500 million. The platform recently raised $70 million in a Series B funding round.
What does this mean for the price of Bitcoin?
Bitcoin is, in the words of macro investor Raoul Pal, pristine collateral. It is the purest form of collateral imaginable. Indeed, because of the public nature of the world’s safest blockchain, there is not a shred of doubt about who owns what. The role that Bitcoin can thus have as collateral is just begging to be monetized. Several crypto lending platforms already allow you to borrow dollars or other fiat currencies against your Bitcoin (and other cryptocurrencies). It was only a matter of time before Bitcoin would be qualified as another form of collateral to buy a house against.
This type of financial product can in the long term have a positive effect on Bitcoin's price. It reduces the need for people to sell their Bitcoin if they want to diversify their portfolio by putting a portion into real estate. It will strengthen the strategy of hodling.