2023 was a pivotal year for our industry and as it grinds to a halt in the coming weeks, we would like to take this opportunity to wish you and your loved ones happy holidays from all of us at M11 Credit!
Looking Ahead
We are gearing up for another year of contributing to a stronger foundation for credit markets within the realm of cryptocurrency and intend to stay at the forefront of exploring innovative lending opportunities. In line with M11 Credit’s strategic approach, our focus has shifted towards identifying and engaging with select prime brokerage (PB) borrowers who not only demonstrate prudent risk management systems but also maintain a high standard of creditworthiness and transparency. This exploration is driven by our belief that lending to PBs in the crypto space can offer the most competitive risk-adjusted returns to capital allocators.
In an upcoming M11 Credit article, we delve into various aspects of this lending landscape, aiming to provide a comprehensive understanding of the opportunities and benefits it presents. At a high level, our approach is centered around efficient undercollateralized lending, which benefits from the technical over-collateralization inherent within enclosed PB ecosystems. This structure not only enhances capital efficiency but also ensures a robust risk management framework, aligning with our commitment to delivering sustainable and secure investment opportunities in the dynamic world of digital assets.
In tandem with these efforts, M11 Credit is excited to be in the process of developing a novel product that is in harmony with the PB infrastructure we have been meticulously exploring. This forthcoming product is tailored to leverage the inherent strengths of PB borrowers known for their sound risk management. We are thrilled to share that the anticipated launch of this innovative product is scheduled between Q1 and Q2 of 2024. We encourage you to stay tuned for more details in the coming months, as we prepare to unveil more about this initiative.
Market Pulse Commentary: Digital Asset Lending Landscape
As we head into December, we continue to observe growing interest in the digital asset lending space. Although a notable gap still exists between the terms offered by lenders, which reflect diverse risk/reward profiles, and the conditions borrowers consider feasible in today's complex market landscape, we are beginning to witness a gradual convergence in these areas. Previously characterised by persistently low trading volumes, the market is now showing a modest uptick in trading activity. This uptrend, coupled with the reappearance of the market-neutral Bitcoin ‘basis trade’ as futures premiums rise above 10%, hints at a resurgence, which should further drive the demand for capital.
Expectations from Lenders:
Our current insights into lender rate expectations, which vary based on the specifics of deal structures and the parties involved, remain unchanged from last month. The market is predominantly witnessing transactions on the overcollateralized end, with rates in the lower double digits. This trend is primarily driven by wholesale lenders in the market to refinance retail lending books of defunct CeFi lenders (e.g., Celsius). In the undercollateralized segment, lender expectations for rates fall within the following ranges:
- USDC(T): 13%+ with collateralization levels ranging from 0% to 25%
- BTC: 5%+ with collateralization levels between 0% and 25%
- ETH: Staking rate + 2% spread, with collateralization levels from 0% to 25%
Expectations from Top-Tier Borrowers:
There’s a noticeable uptick in bids from top-tier, market-neutral trading borrowers with rates above 13.5%, particularly for unsecured loans. We’re observing a continued significant surge in capital demand from Prime Brokers (PBs). This trend aims to fortify their balance sheets in anticipation of increased demand from borrowers, especially when trading volumes and market volatility intensify.
Meet the team: Nikita Razuvaev
Introducing Nikita Razuvaev: Credit Manager at M11 Credit.
Nikita strengthens our team with his solid foundation in corporate & investment banking. He possesses extensive experience in debt and mezzanine financing for corporates, and in managing venture capital and private equity investment portfolios.
By bringing traditional credit and investment experience to M11 Credit, Nikita is contributing to shaping the underwriting & structuring processes.
Nikita holds dual Master's degrees in Corporate Finance from Anglia Ruskin University (UK) and the Finance University (Russia), and has passed CFA Level 1. He is also passionate about sports, holding a black belt in judo and teaching jiu-jitsu in his spare time.
