The Strategist

Former cryptotraders warn of cryptocurrency bubble

10/30/2019 - 04:57

The cryptocurrency loan market, which appeared only last year, is rapidly heading for collapse, former Wall Street traders warn. This is facilitated by the lack of lending standards and mismatch of huge supply and low demand.

Cryptocurrency loans have expanded too quicklyб and are moving towards an explosion, told several former Wall Street traders who are now engaged in digital assets. According to them, the signs of a bubble in this area are too similar to the traditional problems of financial markets: low lending standards, excessive supply of funds with little demand and increased risks.

Cryptocurrency loans began to develop only in 2018 at the time of the crisis in the virtual asset market. Then those owners of digital currencies, who did not want to sell them at low prices, lent them to earn interest, Bloomberg writes. Now the entire industry can be estimated at $ 5 billion, and the number of credit platforms is growing rapidly, the agency said with reference to Graychain Ltd. blockchain company. 

“Do borrowers understand the risk - that’s where the danger is. The competition is higher, this leads to rates that are completely out of line with risk and collateral [loans],” said Michael Moreau, owner of Genesis crypto platform, to Bloomberg.

Other market participants reassure that the collapse of the cryptocurrency market is not posing a danger yet. Funds in digital currencies are mainly held by institutions with a high level of risk management, said Alex Mashinsky, founder of Celsius Network. The main threat, he said, is unprofessional individual investors.

So far, the size of the market and loans is not so significant for its collapse to noticeably affect the rest of the world, Bloomberg notes. But it’s difficult to accurately assess the potential damage: it can either go unnoticed or result in a significant drop in the value of cryptocurrencies, the agency added.