Xapo Banks, a crypto wealth management firm, is now providing U.S. dollar loans secured by Bitcoin to enhance liquidity options for its clientele.
Based in Gibraltar, Xapo Bank has rolled out Bitcoin-backed USD loans aimed at reducing the need for customers to sell their BTC while offering them more flexible liquidity options.
Clients of Xapo Bank can access loans of up to $1 million by using their Bitcoin as collateral. Depending on the loan amount, borrowers will have a repayment period of up to one year and can obtain as much as 40% of their Bitcoin’s market value in U.S. dollars.
The company has noted that during times of market volatility, customers often choose to liquidate their crypto assets first, which contributes to increased selling pressure and ultimately impacts Bitcoin, the largest cryptocurrency by market capitalization.
By offering USD loans backed by Bitcoin, the goal is to promote long-term BTC ownership while providing immediate liquidity when required.
Learning from previous missteps
In 2022, crypto-native lenders such as BlockFi and Celsius offered similar services but ultimately failed to meet expectations and were found to have manipulated their financial records to remain solvent. Their downfall played a significant role in prolonging a bearish market, undermining trust in crypto lending platforms.
However, unlike BlockFi and Celsius, which were regulated entities, Xapo functions as a fully licensed bank, structured similarly to traditional financial institutions. This fundamental difference may lead to varied outcomes for Xapo.
In related developments, Xapo Bank partnered with trading firm Hilbert Group in August 2024 to establish a $200 million Bitcoin fund. Additionally, in 2023, the bank broadened its cryptocurrency offerings, allowing clients to purchase tokens like Ethereum (ETH) and Cardano (ADA).