Coinbase to Offer Bitcoin-Backed Loans to US Customers

Coinbase will allow U.S. retail customers to borrow fiat loans against as much as 30% of their bitcoin holdings in the fall, the San Francisco-based exchange announced Wednesday.

Coinbase is one of the largest and most regulated crypto exchanges to get into the lending business, and the exchange is setting conservative parameters on the product, capping credit lines at $20,000 per customer and offering an interest rate of 8% for bitcoin-backed loans with terms that are a year or less.

Customers will need to fill out a brief application but won’t have to go through a credit check, however, and borrowers will be able to receive their loans in two to three days.

“Customers may use bitcoin-backed loans in different ways depending on their financial needs, including for large expenditures like home or car repairs, financing major occasions like a wedding, or helping to manage higher-interest personal loans or credit card debt,” Max Branzburg, head of product at Coinbase, said in an emailed statement.

The product is available in only 17 states but Coinbase is pursuing licenses in other states and countries to be able to expand its lending service, he said. A waitlist opened Wednesday afternoon, including the tagline:

“Have you ever needed cash for something urgent, like a car or home repair? In the past, you might have sold Bitcoin to cover it and incurred a taxable gain or loss. Now you don’t have to.”

The exchange says it won’t reinvest the collateral elsewhere and will keep the bitcoin at the exchange, unlike some crypto lenders who rehypothecate collateral or invest deposits into perpetual swaps.

Adding a lending product can be a way for exchanges to keep customer funds at the exchange instead of moving them elsewhere, said Joseph Kelly, CEO and co-founder of crypto lender Unchained Capital. Square’s bitcoin-friendly Cash App also announced this week that it is testing a lending product that will offer customers short-term loans of between $2 and $20.

Coinbase’s low interest rate will also allow it to operate in many states that would otherwise require additional licensing to avoid usurious lending practices.

“It’s a good bull-market product when customers have excess capital they’d like to do something with,” Kelly said. “We’ve almost never seen a monopoly lending market … I’d expect other exchanges to follow suit.”

The new Coinbase product is only available in the following states: Alaska, Arkansas, Connecticut, Florida, Georgia, Illinois, Massachusetts, New Hampshire, New Jersey, North Carolina, Oregon, Texas, Virginia, Nebraska, Utah, Wisconsin and Wyoming.