Xapo Bank Launches Bitcoin-Backed USD Loans for Hodlers

Xapo Bank, a global cryptocurrency-friendly bank based in Gibraltar, has introduced a new Bitcoin-backed USD loan product aimed at long-term Bitcoin holders, or "hodlers." This move is part of the bank's strategy to revive the crypto lending sector, which has faced significant challenges in recent years. The new lending product allows qualifying clients to access loans of up to $1 million, with repayment schedules ranging from 30 to 365 days and no penalties for early repayment.

The Bitcoin-backed loans are designed to provide liquidity to hodlers who wish to access cash without selling their Bitcoin holdings. According to Xapo Bank CEO Seamus Rocca, Bitcoin is an ideal form of collateral due to its borderless nature, high liquidity, 24/7 availability, and ease of divisibility. This makes it uniquely suited for lending purposes. Unlike traditional assets, Bitcoin's characteristics make it a more flexible and accessible form of collateral for lending activities.

A key feature of Xapo's Bitcoin loan product is that the bank does not rehypothecate the loan collateral provided by users. This means that the Bitcoin collateral is not reused or lent out to other parties. Instead, the collateral is securely stored in Xapo's BTC vault using institutional multiparty computation (MPC) custody. This approach ensures that the collateral remains under the control of the borrower and is not subject to the risks associated with rehypothecation.

Eligibility for the new Bitcoin lending offering is based on several criteria, including the amount of Bitcoin holdings and the duration of holdings. Xapo specifically targets long-term BTC holders with a long-term investment strategy. The offering is available to global investors in various regions, excluding residents of the United States. Xapo Bank is regulated by the Gibraltar Financial Services Commission under the Financial Services Act 2019 and has successfully passported its banking license in the United Kingdom, granting its Xapo Bank App full access to the country.

The launch of Xapo Bank's Bitcoin-backed USD loans comes at a time when the crypto lending industry is recovering from a major crisis in 2022. The collapse of major lending providers like Celsius and BlockFi, triggered by the historic Terra crash and a subsequent bear market, significantly eroded trust in the crypto lending space. However, there is a growing demand for Bitcoin-backed loans, particularly among high-net-worth individuals and institutional investors who seek liquidity without selling their Bitcoin holdings.

Xapo Bank's new lending product addresses these concerns by offering a secure, transparent solution that does not engage in rehypothecation. The bank provides risk management tools and proactive protection to prevent automatic liquidations. In the event of a Bitcoin price drop, customers receive instant notifications, allowing them to either top up their collateral or make partial repayments to maintain their loan status. This approach ensures that borrowers have greater control over their collateral and are better protected against market fluctuations.

Xapo Bank's initiative to introduce Bitcoin-backed USD loans is part of a broader trend in the crypto industry, with other firms also working to launch similar products. This move reflects the growing interest in crypto lending and the potential for Bitcoin to play a significant role in the financial ecosystem. As the industry continues to evolve, it is likely that more innovative lending products will emerge, providing new opportunities for investors and borrowers alike.