The month of March witnessed a continuation of the benign trading environment that commenced around the BTC ETF approvals in the beginning of 2024.
On the back of this, demand for trading inventory remains elevated but at the same time, especially USDC and USDT remain hard to source.
The preferred borrowing term for trading firms remains -for obvious reasons- an unsecured facility but in the absence of proper financial disclosure, verification and monitoring tools it will be impossible for capital to be unlocked.
It is against this background that we published the article below where we advocate for setups that satisfy both the safety gauges that lending capital demands as well as the need for efficient borrow.
Credit Lending Mechanisms for Crypto Trading Firms
The research article presents a detailed examination of credit lending dynamics within the digital asset sector, with a particular focus on trading entities. The study delves into various lending paradigms prevalent in the cryptocurrency market, including over-collateralized, under-collateralized, and prime brokerage financing, each distinguished by its risk profile and capital efficiency.
Looking ahead, the study envisions the integration of traditional PB model strengths with digital asset innovations, such as DeFi Capital Market Platforms acting as Capital Formation Layers. This convergence has the potential to catalyze the development of more sophisticated services in the crypto credit market, catering to the evolving needs of trading firms and capital allocators, and contributing to the maturation of the digital asset ecosystem.
Key Takeaways
Spectrum of Lending Models in Crypto.
Prime Brokerage as a Holistic Solution.
Navigating Challenges in the Crypto Credit Market.
Envisioning the Future Financing for Trading Firms in the Crypto Space.
Strategic Role of Capital Allocators.
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Market Pulse Commentary: Digital Asset Lending Landscape
The total crypto market cap managed to keep the momentum from February and reached new local highs of $2.7 trillion in the middle of March. Those highs only lasted for a couple of days and were followed by an 18.9% drop down to $2.2 trillion which also marked the local bottom. For the rest of the month, the price has been consolidating and going sideways.
By now it’s clear that the approval of the Bitcoin spot ETFs and the substantial inflows and outflows associated with them are having a significant influence on Bitcoin’s price movements. According to Bloomberg the Bitcoin ETFs saw a combined trading volume of $111 billion in March, which is three times higher than in January and February.
March marks the third consecutive month with an increase in Bitcoin spot ETF volumes, pushing the cumulative trading volume to over $184 billion. Consequently, Bitcoin prices soared, reaching a new all-time high of $74,000 in the second week of March before entering a consolidation phase.
Expectations from Lenders & Borrowers:
With funding rates where they currently are, some DeFi lending protocols are able to offer 35-40% returns on stables. This heavily impacts expectations from lenders and causes rates to fluctuate across currencies, collateralization levels and structures.
To illustrate this: we recently have advised on loans in BTC with interest rates ranging from 5% to 12% across various collateralization levels, terms and setups.
Please reach out for more color on your specific allocation and financing needs and we are happy to put the appropriate opportunities in front of you.
Token 2049 Dubai
Meet us during Token 2049 from 17-21 April in Dubai to see how M11 Credit can help you identify the right opportunities and navigate the challenges that exist in today's digital assets credit markets.
