Fidelity Digital Assets will now allow its institutional customers to use their Bitcoin as collateral against cash loans.
This new offering has been introduced in partnership with blockchain startup BlockFi, which announced on Wednesday that it is “thrilled” to support “Fidelity’s entrance into the digital asset financing space.”
“Having an ability to finance positions is a critical component of financial services infrastructure, and this collaboration reflects an exciting development for the digital asset ecosystem,” said Zac Prince, CEO and founder of BlockFi.
BlockFi will be offering US dollar loans to institutional clients holding BTC as collateral in custody accounts at Fidelity Digital Assets (FDA), the unit of Boston-based asset manager Fidelity Investments. Christine Sandler, Head of Sales and Marketing for FDA said,
“We continue to see demand for increased capital efficiency from institutions that maintain long bitcoin positions, and with this collateral agent capability, our customers seeking that efficiency can access more opportunity with the capital that they trust us to keep safe.”
Cash will be offered worth 60% of loans backed by the digital asset with “room for client-level customization” and even adjusted to meet large firms’ needs, said Prince.
Combining risk-managed loan agreement with custody furthers the opportunity for institutions in the digital asset space. Sandler said,
“The business and market momentum we’ve seen this year have reinforced our belief that institutional investors are looking for a more comprehensive offering in the digital assets space.”
With this new offering, FDA is entering into the “thriving lending market” of digital assets that target those Bitcoin investors who want to turn their cryptocurrency into cash without selling.
Hedge funds, crypto miners, and over-the-counter trading desks are the potential customers, Tom Jessop, president of FDA, said in an interview with Bloomberg. He sees the loans to be longer-term than the typical repo trade.
According to him, holding BTC to back loans is “a foundational capability,” and “as the markets grow, we’d expect that this becomes a fairly important part of the ecosystem.”
Right now, BlockFi offers 8.6% APY for users that HOLD BTC on their platform.