Yesterday, Czech platform Bondster announced that it has started offering loans secured by Bitcoins, joining the limited ranks of peer-to-peer lenders embracing crypto-assets. But is this an emerging trend or a flash in the pan?
Crypto lending and P2P lending both present risks as well as opportunities, but there is an argument to be made that together they are more than the sum of their parts. Both asset classes trade on cutting edge financial technology, and both offer the possibility of high returns, albeit with a certain element of risk.
Investors should be aware that crypto can be volatile like stocks and shares, with the prices continually changing. According to Morningstar data, the price of Bitcoin is at £34,411.17 today (17 September), down from £38,041.47 at the start of the week – a drop of almost 10 per cent within a matter of days.
However, crypto-backed P2P lending has the potential to make crypto trading, and crypto-backed lending less risky.
Yesterday, Prague-based P2P platform Bondster announced just this, that it has started offering loans secured by Bitcoins, and these are subject to a buyback guarantee, which is applied in the event that the borrower ceases to repay the loan. In this case, the originator would pay the investors the entire amount that they have invested, including the interest earned.
This looks to make Bondster’s P2P crypto loans less risky and more attractive for investors, but one wonders whether this model with a buyback guarantee is sustainable.
Lee Birkett, founder and chief executive of JustUs and sister company Moneybrain which has its own cryptocurrency BiPs, has said that crypto-backed P2P lending brings the best aspects of both asset classes together.
“It’s a risky asset class, riskier than P2P lending,” he said.
“In many instances it has nothing behind it, but P2P lending is asset backed. Our currency BiPs takes the best of P2P and brings that to crypto and it’s asset backed.”
Lenders should always take the time to find out whether their crypto lender is regulated or not.
In July, the Financial Conduct Authority (FCA) banned one of the largest cryptocurrency exchanges, Binance, from operating in the UK but there are still many unregulated crypto lenders out there.
Birkett has called for the government’s Online Safety Bill to be expanded to include financial services and give the FCA more power to act against unregulated crypto lenders and warned lenders about investing in unregulated crypto backed lenders.
“If it’s not regulated you shouldn’t invest,” he said.
“Crypto is a speculative asset. And P2P lending done well is one of the best asset classes in the world.”
Lenders should always be mindful of the risks when investing and perhaps more so in the exciting world of crypto.
While there are attractive opportunities available from regulated platforms that offer crypto-backed P2P lending, this is an investment class that still has a lot of room to evolve.