Xapo Bank Launches Bitcoin-Backed Loans, Expanding Services

Xapo Bank, a Gibraltar-based private bank, has announced the launch of a new service that allows customers to use their Bitcoin holdings as collateral for loans. This move is part of the bank's strategy to expand its offerings and provide more options for its clients. The service enables customers to access up to $1 million in Bitcoin-backed debt, with the exception of those located in the UK and Australia. Gadi Chait, an investment manager at Xapo, highlighted the asset's value as collateral, noting that Xapo has been safeguarding Bitcoin on behalf of customers since 2013.

Xapo's entry into the Bitcoin lending market comes at a time when other financial institutions, including Wall Street firms like Cantor Fitzgerald, are also developing their own Bitcoin financing businesses. By expanding its "one-stop shop," Xapo aims to offer customers more flexibility and options in most regions. The bank was one of the first crypto banks to establish a physical headquarters in Europe, settling in Gibraltar during the crypto boom of the pandemic era. Last year, Xapo gained regulatory approval in the UK, allowing it to provide interest-bearing Bitcoin accounts and other banking services to customers in the region.

In the U.S., Bitcoin-backed lending has seen a resurgence. While some companies like Coinbase ceased issuing such loans in 2023, they have since restarted the service, tapping into decentralized lending protocols like Morpho. Asset managers are also utilizing decentralized finance (DeFi) to earn yield from Bitcoin-backed loans. Bitwise, for example, recently made an allocation on Maple Finance, a lending protocol. Xapo, however, operates as a centralized entity, requiring customer approval and holding the corresponding Bitcoin in a vault until the loan is repaid, which can take up to a year.

The crypto lending industry faced significant challenges in 2022, with a series of high-profile bankruptcies and the collapse of FTX leading to a loss of favor among market participants and increased regulatory scrutiny in the U.S. Xapo CEO Seamus Rocca addressed these issues, stating that many long-term Bitcoin holders have avoided crypto-asset-backed lending due to predatory practices and unreliable products. Rocca emphasized that Xapo is taking a different approach to address these concerns. The bank was founded by Wences Casares, an Argentine entrepreneur who has been a prominent figure in the Bitcoin community since the early days of the cryptocurrency's adoption in Silicon Valley.