- Coinbase will soon offer cash loans to its users
- He will hold the client’s Bitcoin as collateral for the loan
- The company said it would do nothing with the guarantee
Cryptocurrency exchange Coinbase has said it will start offering Bitcoin-backed loans to customers starting this fall. This feature allows users to borrow money with their Bitcoin acting as collateral for the loan. Currently on the waiting list, the product will first be available in 17 states with plans to launch across the United States and other countries soon.
The loans offered could represent up to 30% of the client’s Bitcoin funds or at most $ 20,000. The loan can be repaid in one year with an annual interest rate set at 8%. Coinbase said they may revise the rate in the future depending on underlying market conditions.
Coinbase noted that some customers who have upcoming expenses like auto repairs and home renovations choose to liquidate some of their crypto holdings in cash. These clients, the company said, may not actually want to sell their cryptocurrency holdings or take out loans with interest of up to 20% APR.
With Coinbase’s new product, the company holds the Bitcoin equivalent as collateral for the amount borrowed by the customer. The exchange said it would not do anything with the collateral, such as re-mortgage or the practice of loaning the collateral given by customers to the company.
This process could be one reason they can offer an 8% APR. However, the low interest rate could also signify its intention to launch the product in more states which could require additional licenses if the rates were higher, Coindesk reported. The company further stated that the approval process will take 2-3 days and will not require lengthy application forms.
“Customers can just sign up with a few clicks and get the money in their accounts within 2-3 days,” Coinbase noted in a report.
A loan product is a way for companies to allow users to keep their funds on the exchange, said Joseph Kelly, CEO of Unchained Capital. Speaking to Coindesk, he said that Coinbase would not have a monopoly in this category, however. “I expect other exchanges to follow suit,” he added.
Coinbase’s competitors in this category include BlockFi, Nexo, and Celsius. BlockFi’s loan product starts from 4.5% per annum, lower than Coinbase. Looking at the loanable amount of $ 20,000, the highest offered by Coinbase, the BlockFi website posted an interest rate of 9.7%. BlockFi, however, also allows loans with Ethereum and Litecoin as collateral, while Coinbase has said it only allows Bitcoin at this time.