More and more companies set up to help you earn interest or obtain a loan against your crypto coins are springing up every day.
Only days ago reports surfaced that these companies may be able to do even more as one of the earliest, highest profile and most controversial adopters of cryptocurrency – former Disney star and current crypto-billionaire Brock Pierce – became the first person to take out a mortgage, via Swiss-based lender NEXO, using cryptocurrency as collateral.
The reports were quickly confirmed by Antoni Trenchev, co-founder and managing partner of NEXO, who told the media that Pierce had “backed the entire loan for the house with bitcoin making this our first-ever crypto-backed mortgage.”
In the wake of the news many have asked themselves why given his net worth Pierce found it necessary to take out a mortgage at all; after all if he is as rich as his Forbes position would suggest surely he could buy the property outright?
Our feeling is this is an indication of a huge behavioural shift for the first crypt-owning generation.
To us Pierce’s desire to lock down a bitcoin backed mortgage is more about financial acumen than what he can and can’t afford and reflects the tack the majority of our crypto HODLing clients (i.e. those who are Holding Onto their bitcoin for Dear Life!) are taking, namely to hold on to and work their assets harder because they are sure their value will soar again in the near future.
It is this mind-set that is allowing companies like NEXO to grow, especially as unlike traditional mortgages the interest rates being quoted are often as low as 8 or 9%.
So in practical terms how does a NEXO mortgage actually work? It’s actually fairly straightforward and breaks down into 3 steps:
- You deposit your crypto assets into your NEXO Wallet. These wallets are promoted as being both totally secure and insured up to $100m by audited custodian BitGo.
- Your loan is instantly made available via NEXO’s fully automated process and there are no credit checks involved.
- You can then spend the money you’ve been loaned using a card or withdraw the funds into your bank account and, as we’ve said, at an interest rate that can be as low as 8% per year.
And aside from the lower interest rate, the other benefit of a crypto-backed mortgage is there are no minimum loan repayment commitments and no hidden fees. Any interest is simply debited from your available limit and you can make your repayments at the level you want at any time.
If you own a significant amount of cryptocurrency and this type of loan looks like an attractive way to take advantage of your assets to raise a little cash while you wait for them to increase in value, our advice would be to take some advice before you go forward. You may well by champing at their bit to get things moving but always make sure you ask someone with a lot of crypto experience to go through the small print with you.
And this isn’t just a question of slowing things down or incurring additional costs unnecessarily. Given the sums involved crypto-currency scams are still increasing in frequency and sophistication. The last thing you want to find is you have either unwittingly given up your assets to digital fraudsters. Having an experienced eyes look into both the company offering the loan and the terms and conditions governing the loan will give you the additional peace of mind you’ll need to make a final decision.
Alternatively you may have found our blog because you have already put up your coins as collateral for a loan or to release interest and found that the lender has not lived up to the terms you signed up to. If that is the case you may wish to discuss how best to exit the arrangement before your situation worsens.
As lawyers who specialise in every aspect of cryptocurrency, we can provide any advice you may need in relation to a loan or interest arrangement backed by cryptocurrency. If you would like to talk to someone who really understands the commercial aspects of cryptocurrency please call us today on 020 7792 5649 or email us at This email address is being protected from spambots. You need JavaScript enabled to view it..
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