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How Does Crypto Lending Work?

Crypto loans have terms of a few weeks or months, and you will be able to borrow for around two years at maximum.

Enness’ specialist brokers help borrowers secure competitive, high-value finance using mainstream cryptocurrencies as collateral. Enness can broker crypto finance for you regardless of your nationality or country of residence. Enness’ team of expert cryptocurrency brokers can source and negotiate million-pound-plus deals and can broker finance in cross-border or international deals.

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Exploring The Current Cryptocurrency Landscape

While mainstream cryptocurrencies remain volatile on occasion, cryptocurrencies have propelled many investors into ultra- and high-net-worth territory. This is especially likely to be true if you were an early investor or invested before the most recent increases in valuations since 2019/2020. Despite the prominence of cryptocurrencies, using these assets as collateral for a loan remains difficult. The reality is that using cryptocurrency as collateral for a loan remains a niche part of the lending sector and is served by relatively few lenders.

Despite having considerable wealth invested in major cryptocurrencies, you may not have significant cash flow (compared to the overall value of your cryptocurrency holdings). This is a relatively common scenario, and Enness’ cryptocurrency loan brokers will still be able to help you. If this is the case and you have projects or plans you need significant capital to achieve, borrowing against your cryptocurrencies is one of the best and fastest routes to securing liquidity. For some cryptocurrency investors, borrowing is sometimes the only way to access significant capital without selling assets.

While borrowing is a consideration of many cryptocurrency investors, there are few lenders offer crypto loans and finance, especially if you are in the market for a high-value loan. Working with an experienced broker is one of the best ways to ensure you have access to all the lenders in the market (including smaller institutions that prefer introductions). A crypto finance broker will also ensure you have the best available package on the market – something that is not always easy if you are sourcing finance yourself.

How Does a Crypto Loan Work?

Lenders offer a loan as a percentage of the value of the coins you want to use as security. If you want a crypto-backed loan, you will usually need to own significant mainstream cryptocurrency investments, as minimum loans usually start at around £100,000. A loan-to-value ratio (LTV) of 50% is usual, so against cryptocurrency portfolios with a valuation of at least £200,000. In theory, there is no upper limit on cryptocurrency finance and borrowing several million pounds (or the equivalent in another currency) is very possible if your portfolio supports it.

Enness are expert brokers of high-value crypto loans and can source and negotiate loans for you very quickly, even if you are in the market for a high-value loan – usually considered anything more than £1 million. In crypto finance, the underwriting process is focused on the value of the cryptocurrencies you want to put forward as collateral, your plans for the loan capital and your exit. Therefore, underwriting can usually move much faster than in other types of lending and crypto finance borrowers find that deals can be completed very quickly.

In theory, you can borrow against any mainstream cryptocurrency with a sizeable market cap and which can be liquidated easily. The most common types of crypto-backed loans are secured against Bitcoin, Ethereum, Litecoin and Cardano, but this can vary from lender to lender. As new cryptocurrencies rise to prominence and their valuations increase, lenders active in crypto finance will consider lending against them, so the assets you can use for a loan can change over time. 

The value of your cryptocurrencies will influence how much you can borrow, as your lender will need to factor in any fluctuations in the value of your cryptocurrency. If your cryptocurrency drops below a particular value during the loan term (defined with your lender in advance), you may need to provide additional cryptocurrency as collateral. If you cannot or do not wish to do this, your lender may sell a portion of the existing assets to reduce the loan. If you were to miss repayments or default on the loan, the lender will also be able to sell your cryptocurrencies. 

Advantages

Crypto finance is quick to arrange, and you can use cryptocurrency loans for various reasons. Some of the most common scenarios are:

  • To create liquidity to pursue an opportunity (investment, buy more crypto, grow a business, etc.)
  • To solve a problem (pay off a debt, consolidate debt, create cash flow)
  • Diversify a portfolio (especially common if you exclusively hold cryptocurrencies)
  • Buy a high-value asset such as a property

Crypto loans are advantageous because they allow you to utilise your cryptocurrencies by pledging them as collateral for a loan without liquidating these assets to create the capital you need. Because mainstream cryptocurrency valuations are predicted to continue to grow over time, holding cryptocurrencies for as long as possible is likely to be your preferred investment strategy. You may also want to go long on your cryptocurrency investments rather than sell them and lose out on any future upside.

From a financial and fiscal standpoint, you may find that using cryptocurrency as collateral for a loan is more advantageous than selling these assets to create liquidity. Selling cryptocurrencies to generate capital can also trigger significant tax liabilities. This may be especially true if you were one of the first cryptocurrency investors and have seen your cryptocurrency holdings soar in value in recent years. This aside, debt can often be used strategically to reduce fiscal liabilities, although getting expert advice here is essential.

Many of Enness' clients feel that taking out a crypto loan is more efficient and beneficial than selling cryptocurrencies.

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Disadvantages

Crypto finance remains a niche lending product, and few lenders can offer crypto-backed loans. It’s not necessarily easier to secure a competitive loan from a smaller pool of lenders, however, as there is less competition in the market, and there can be significant differences from lender to lender.  

Crypto loan lenders are not always open to negotiation with individuals, and if you don’t like what one lender offers you, there are not that many alternative lenders to choose from. Therefore, understanding how to present your case and engage with lenders is imperative, as is knowing what they want to see and what will bring them comfort. Every lender in the space has their own quirks and preferences, and knowing what they are and how to meet them is often the difference between a great loan and a workable but not absolutely ideal finance package. Here, Enness’ crypto finance broker will come into their own, and they will be able to approach lenders, present your case and negotiate on your behalf, streamlining the process and ensuring you get the best crypto finance deal.

Cryptocurrencies continue to fluctuate in value, which can be a disadvantage for borrowers. Lenders need to be able to absorb significant valuation decreases, and as a result, rates tend to be higher than for other types of lending, and LTV is usually lower.

If you have very significant cryptocurrency investments and want a finance deal that is relatively low in comparison (e.g., you have £15 million in Bitcoin and you want to borrow £1 million), this will be relatively easy to do. Lenders will be comfortable with the LTV, and your cryptocurrency holdings can easily absorb the shock of a drop in valuation without incurring a margin call. However, the more you want to borrow and the higher the LTV, the more closely lenders will assess you. A maximum LTV of 50% is very typical for crypto finance. If you are looking for LTV in this range or want to borrow a significant amount, Enness crypto loan brokers will be able to help you maximise what you can borrow and secure the most competitive rates and terms.

Traditional Lender Attitudes To Crypto

Traditional lenders have been hesitant about cryptocurrencies in the past, especially when they were not as extensively adopted as they are now. However, many mainstream lenders have seen the enormous opportunities presented by cryptocurrency in recent years, and there is a demand from both stakeholders and borrowers to do more in the crypto space. As a result, larger institutions like banks are considering how best to offer products like crypto finance but specialist and boutique crypto finance lenders remain the leading lenders in the space for the time being.

While more traditional institutions may decide to offer cryptocurrency finance in the future, there are still barriers to entry. Mainstream lenders (particularly banks) in their present state are designed to underwrite loans against standard asset classes, i.e., property, marketable securities, etc. Given the relative novelty of cryptocurrencies, banks are still assessing how to adapt to these newer asset classes, particularly with regards to managing risk and meeting regulatory requirements. Banks have more rigid compliance requirements they need to comply with than other lenders.

In many cases, AML and documenting the source of funds in a way that meets internal requirements is challenging with regard to cryptocurrency. This isn't to imply that banks do not want to lend against cryptocurrencies in the future or that they don't see cryptocurrency in a positive light. Instead, the current situation is a result of banks' internal setup and processes, which are not yet able to accommodate digital asset classes in the same way smaller, more flexible lenders can. Because of this, as well as the occasionally volatile nature of cryptocurrencies, banks (who are among the most naturally risk-averse lenders) remain largely unable to offer crypto finance.

Enness’ Network Of Crypto Loan Lenders

Enness is an independent broker and has professional relationships with all the lenders that offer high-value crypto finance. Enness’ expert crypto finance brokers can negotiate the best finance packages for you, regardless of where you are based or where you want to deploy the loan capital. Cross-border crypto finance is becoming increasingly common. Enness can easily arrange international financing deals and go directly to the lenders that are happy to see loan capital deployed abroad or lend to you if you are based in a different jurisdiction.

Crypto-backed loans remain a relatively niche product. Some lenders publicise their services but do not offer high-value loans. Other players sometimes do not publicise their services at all, preferring to work on an introduction-only basis. Enness cryptocurrency finance brokers will always start by understanding how much you want to borrow, why you want crypto finance, the digital assets you want to use as security, your exit and any requirements you have (lender preferences, terms, etc.) Using this information, Enness will identify the lenders that will be best suited to you and will seek offers for you from these institutions. Your crypto finance broker will present your application to the lender in the best possible light, explaining the merits of your case and maximising what you will be able to borrow. Then, they will talk you through the offers so you have a complete understanding of your options.

Who Is Eligible For Crypto Finance?

Enness brokers high-value crypto finance. The team are expert cryptocurrency loan brokers and specialise in sourcing and negotiating deals in the million-pound-plus space but can support you if you are looking to borrow £100,000 or more. 

If you hold significant, mainstream cryptocurrencies, you will, in theory, be eligible for crypto finance, provided the loan is affordable, and the lender is satisfied with your plans and exit. The more you want to borrow, the more careful lenders will be, and in any high-value crypto loan, how you present your case will be imperative in securing crypto finance and how much you can borrow.

Crypto loan lenders understand the current landscape for borrowers and some of the challenges this can create (lack of mainstream lenders, you may have little liquidity, etc.). Being transparent and presenting all the facts accurately is critical – don’t try and outthink your lender and present what you assume they want to see. Lenders are astute and always uncover the whole story, and you will find that not presenting your case correctly from the get-go will slow down your application process and create unnecessary doubt.

It is presenting the facts in the right way that usually makes a difference in high-value crypto finance deals. Working with a crypto finance broker is often the best way to present your case and negotiate the best rates and terms. Enness will explain your case in a way that is appealing to the lender, and that satisfies their demands or questions. Your broker will also be able to use the merits of your background or situation to open the door to negotiation and secure the best rates and terms possible.

Lastly, to be eligible for crypto finance, the loan must be affordable. If you cannot comfortably support repayments, lending will not be an option, even if you have very significant wealth tied up in cryptocurrencies.

How Enness Works With Intermediaries

Despite crypto finance remaining a niche part of the market, many high-net-worth individuals have built up significant capital through cryptocurrency investments. Many of these investors are now looking at how to leverage or diversify these investments, and as a result, you may also be receiving more requests about crypto finance from your clients.

Managing requests and questions about crypto-backed finance is challenging if brokering finance is not your area of expertise. It is particularly difficult to know who the best lender will be for your client, where to find the best lender and where there is space for negotiation (and how to do this effectively). Operating alone on behalf of your client to source crypto-backed loans can quickly become complex, especially without relationships with lenders that provide crypto finance.

Enness is a leading broker of high-value cryptocurrency finance for high-net-worth individuals. The team regularly works with private client advisers from around the world to broker complex and significant finance. Working alongside you as a trusted partner, Enness will help you negotiate cryptocurrency finance for your clients, however much they want to borrow and whatever their plans. Enness’ team of cryptocurrency brokers can either work alongside you and your client or provide a white-labelled solution, delivering offers that you pass on without Enness being involved in communication with your client directly. 

Whatever your clients’ ambitions and requirements, and however complex their background, Enness can help. You will find Enness’ team of crypto finance brokers is proactive, hands-on and available 24/7 to deliver the crypto finance solution that you and your client need.

Crypto Finance

Get In Touch

Enness has a track record assisting high-net-worth individuals to secure high-value crypto loans to purchase property using cryptocurrencies as security. Contact Enness to have a no-obligation chat about your plans for purchasing property and to learn more about how Enness expertise and how the team can help you.

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