Xapo Bank Offers Bitcoin-Backed Loans Giving Access to $1M in Cash Without Selling BTC

Xapo Bank, a wealth manager for long-term holders of bitcoin, said it is offering its members BTC-backed loans of up to $1 million.

Crypto lending became something of a bête noire in recent years following a series of high profile collapses and bankruptcies that shook the crypto industry. But crypto-backed loans are now making a comeback, with companies such as U.S.-listed exchange Coinbase (COIN) reintroducing bitcoin-backed loans in January after withdrawing the service in 2023.

Xapo CEO Seamus Rocca stresses the difference between the company's wealth-management service and what exchanges generally offer, which is geared towards trading.

“If an exchange is offering you secured lending, it's to encourage leverage,” Rocca said in an interview. “And the moment you have leverage, unless you're a professional investor — and even when you are a professional investor — the risk of losing money is very high. If you're an exchange platform, you don't really care about that. You're just there to facilitate gambling.”

A conservative 20%-40% loan-to-value ratio safeguards customers’ bitcoin, said Xapo, whose Gibraltar-regulated banking license has been passported into the U.K. In effect, this means bitcoin would have to crash to under $40,000 from its current price for borrowers to be liquidated, Rocca said.

Xapo started out in 2013 as a wallet and custodian known for securing bitcoin in Swiss mountain bunkers, a very safe alternative to self-custody for long term holders of the largest cryptocurrency. Ether (ETH) was recently added.

When the firm began testing the water for bitcoin-backed lending, the average loan size was assumed to be around $50,000. It soon became clear some long term holders would like more: Those with the necessary $5 million or so of bitcoin collateral were looking for loans of $1 million. Xapo is able to arrange even larger loans on a case by case basis. The interest rate on the dollar is around 10%, Rocca said.

The main reasons someone might want to take a loan are to buy or upgrade a property, to buy a new car, followed by other miscellaneous needs.

“If you're a bitcoin holder and you have conviction that the price of bitcoin is going to go up, selling any of it is difficult to do,” Rocca said. “But sometimes life gets in the way: You want to upgrade your kitchen, you have school fees to pay. Being able to draw down some liquidity on your bitcoin with someone that you trust is a very appealing product for our customer base.”

Xapo is offering repayment schedules of 30, 90, 180 or 365 days, with no penalties for early repayment, while a loan health tracker provides real-time insights into loan status and potential risks, the company said in a press release.