Bitcoin and cryptocurrency heists are on the rise, with researchers finding more than $1.4 billion worth of digital assets have been stolen so far this year.
Fear of theft has held back institutional adoption of bitcoin and cryptocurrencies, with access to capital based on crypto collateral hampered by security risks and operational challenges.
Now, San Francisco-based crypto custodian Anchorage has teamed up with crypto-friendly lender Silvergate to offer bitcoin and crypto-backed loans without the digital assets having to leave Anchorage’s care.
“Whenever digital assets leave custody, security is a concern,” said Jesse Proudman, chief executive of Strix Leviathan, crypto hedge fund.
Anchorage Financing, aimed at institutional bitcoin and crypto investors such as hedge funds and market makers, will allow borrowers to draw on lines of credit without putting their digital collateral at risk.
“Institutional investors are getting a whole integrated package,” said Anchorage chief executive Nathan McCauley, who sees this kind of service as vital to the ongoing maturation of the crypto space.
“With this system, new participants come into the industry because they can take long positions in crypto and at the same time offer up collateral for loans.”
McCauley pointed to macro investor Paul Tudor Jones’ recent interest in bitcoin as a sign further institutional adoption of crypto is on the way and said he expects the bitcoin price to continue to climb through 2020.
The bitcoin price is up around 30% so far this year, having recovered all of its March coronavirus crash losses.
However, bitcoin’s recent rally has come to a halt at just under $10,000 per bitcoin despite repeated attempts to breach the psychological barrier.
“In order for bitcoin to continue to mature as an asset class and increase demand from institutional investors, we need more platforms like Anchorage Financing to provide leverage for these investors,” said Silvergate CEO Alan Lane.
“Institutional investors are looking for greater capital efficiency and the ability to use bitcoin as collateral to increase the size of their position in the asset.”
Earlier this year, San Diego-based Silvergate Bank, which boasts $2.3 billion in total assets, began allowing its customers to apply for loans collateralized by bitcoin held at digital currency exchanges that are also Silvergate customers.
Silvergate added 46 bitcoin and crypto customers during the first quarter of 2020 but could soon see competition in the space accelerate, with Wall Street giants such as JPMorgan beginning to take on crypto clients.
“As the big banks begin to figure it out and enter the digital currency ecosystem, it provides a huge validation of the asset class as a whole which in turn should drive more allocations to the asset class from main street asset managers, pensions and endowments,” Lane said.
Meanwhile, Anchorage is expecting to grow its client base beyond custodial investors, with bitcoin and crypto miners and exchanges beginning to take an interest in its services, according to McCauley—though he warns crypto finance still has a long way to go.
“I don’t think anyone in crypto has earnt the right to call themselves a prime broker just yet,” McCauley added. “But we will get there eventually.”