Bitcoin to Bucks: Crypto Fans Borrow to Buy Homes, Cars—and More Crypto
Michael Anderson mined bitcoin in his dorm room and left a corporate job to invest in cryptocurrency projects. When he bought his first home in San Francisco this year, he didn’t turn to a bank. Instead, he borrowed against his cryptocurrency.
Crypto enthusiasts such as Mr. Anderson are tapping their holdings to buy homes, cars and, often, more crypto. They are getting these loans from upstart nonbank lenders and automated, blockchain-based platforms.
Like banks, these lenders typically take deposits. Unlike banks, their deposits take the form of crypto. The crypto deposits—which earn higher-than-average interest rates—are used to fund loans to borrowers who pledge crypto as collateral. These loans take many forms. Borrowers can get dollars or other traditional currencies, or stablecoins pegged to them, depending on the lender they are working with.
The business is growing rapidly. One group of crypto lenders has $25 billion in loans outstanding to individual and institutional clients, up from $1.4 billion a year ago, according to the crypto research firm Messari.
People use crypto-backed loans for the same reason they borrow against their stock portfolios: to reap the benefits of rising prices without diminishing the size of their bets. Ether, for example, has risen nearly 10-fold in the past year, eclipsing the interest on the average ether-backed loan. Borrowers can also use this strategy to avoid capital-gains taxes.