Xapo Bank Offers BTC-Backed Loans

Xapo Bank, a wealth manager for long-term bitcoin holders, announced it is offering members BTC-backed loans of up to $1 million.

Crypto lending faced challenges in recent years due to several high-profile collapses and bankruptcies that impacted the industry. However, BTC-backed loans are reviving, with companies like Coinbase reintroducing bitcoin-backed loans in January 2023 after previously halting the service.

Xapo CEO Seamus Rocca highlighted a crucial distinction between Xapo’s wealth management services and typical exchanges, which primarily focus on trading. He stated, “If an exchange is offering you secured lending, it’s to encourage leverage… the risk of losing money is very high.” Exchanges are viewed as platforms facilitating gambling rather than responsible lending.

Xapo employs a conservative 20%-40% loan-to-value ratio to protect customers’ bitcoin, ensuring borrowers are safe as the value of BTC would have to dip significantly below $40,000 for liquidations to occur.

Founded in 2013, Xapo started as a wallet and custodian known for securing bitcoin in Swiss bunkers, a secure option for long-term holders. They recently added Ether (ETH) to their offerings.

Initially, Xapo anticipated average loan sizes of $50,000, but many long-term holders with around $5 million in bitcoin collateral sought larger loans, up to $1 million. Larger loans can be arranged on a case-by-case basis, with an interest rate around 10%.

Common reasons for taking loans include purchasing or upgrading property, buying cars, and addressing miscellaneous needs. Rocca noted that selling bitcoin can be difficult for holders who believe in its future value, saying, “Sometimes life gets in the way… being able to draw down some liquidity on your bitcoin with someone that you trust is appealing.”

Xapo provides repayment schedules of 30, 90, 180, or 365 days with no early repayment penalties and a loan health tracker for real-time insights into loan status and risks.