12-05-2019 icon

Cryptocurrency Loans Industry Grows to $4.7 Billion as Bitcoin Investors Ease Tax Burdens

By calvin
cryptocurrency loans industy grows


A recently published report by crypto credit rating platform, Graychain Ltd. estimates that the cryptocurrency loans industry has grown to $4.7 billion. According to The Crypto Credit Report, the number of cryptocurrency loan providers is growing rapidly as more individuals seek to borrow Bitcoin.

The report says

“Crypto lending is already a $4.7+ B sector (loans originated), and is growing quickly. Markets function most efficiently when liquidity is high, and credit is one of the most important mechanisms for providing liquidity in an economic system. For cryptocurrencies to become a robust medium of value exchange, we need to see (1) the continued expansion of borrowing and lending activity and (2) the use of crypto to buy and sell goods and services.”

The industry has matured rapidly. Lenders gave 5,462 loans ($64.8 million) in the first quart of 2019. In the second quarter of 2019, 18,562 loans worth $159.3 million were recorded.  

Unlike conventional loans, cryptocurrency loan platforms typically do not require a credit rating of applicants. All lenders require loans to be collateralized.

Private Lenders Driving Growth in Cryptocurrency Loans Industry

The main types of borrowers in the industry includes private lenders and traders. Private lenders constitute the majority of borrowers in the cryptocurrency loans industry. Private lenders achieve lower rates with cryptocurrency loans. 

Traders who borrow cryptocurrency can avoid triggering taxable events. Borrowers may use their loans to make money from short-term bets.  Graychain’s quarterly analysis shows that the number of loans originated grew faster than the total origination amount. It also grew faster than the number of new addresses. This suggests that more people are borrowing small amounts rather than borrowing millions.

Collateralized Loans and Taxation

Many borrowers in the space loan against expected income. The analyses by Graychain categorizes these types of loans under collateralized loans. This type of loan occurs where a borrower pledges their asset as part of the loan conditions to provide for a scenario where they are unable to pay their loan. 

More governments have chosen to increase taxation in order to gain revenues from the booming cryptocurrency industry. They have used legislation to push their tax agendas. The revenue agencies of governments use different methods to collect taxes. Their method of tax collection is dependant on the tax laws in their jurisdiction. 

The tax laws of one’s country may (depending on what the law says) improve the ability of an individual to reduce the amount of none they have to pay in taxes.