Xapo Bank has introduced an innovative lending product that allows its eligible members to secure USD loans using their bitcoin as collateral. This novel approach lets bitcoin enthusiasts draw on the fiat value of their crypto assets without the need to sell them.
This week, Xapo Bank, which operates as a licensed bank with a focus on bitcoin services, unveiled its bitcoin-backed lending option. Members who qualify can now access loans up to $1,000,000, backed by their bitcoin holdings.
Once a loan is approved, the funds are immediately transferred to the member’s bank account. Meanwhile, the pledged bitcoin is kept securely by Xapo until the loan is repaid. This setup enables members to hold onto their bitcoin for the long term while benefiting from its current valuation.
Borrowers have the flexibility to choose repayment periods ranging from 30 days up to a year, with no penalties for early repayment, giving them a chance to manage costs efficiently.
Seamus Rocca, the CEO of Xapo Bank, highlighted that this product meets a growing demand for responsible lending solutions within the bitcoin and crypto landscape. Previously, many bitcoin holders risked losing their assets through high-risk lending schemes.
Xapo’s loans are designed with cautious loan-to-value ratios, ranging from 20% to 40%, to safeguard member assets. To further mitigate risks, Xapo employs automated systems that monitor repayments and loan health, offering a safer alternative to other crypto lending services.
This launch is timely, as more bitcoin holders seek to leverage the value of their assets without having to sell. Selling bitcoin to fund short-term needs could mean missing out on potential future gains.
Despite the advantages, experts advise caution when using bitcoin as loan collateral. Significant price drops could lead to collateral liquidation if loans are undercollateralized. It is crucial to thoroughly vet lender practices and understand the associated risks before proceeding.
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