Ledn also claims the “first mortgage secured in bitcoins”. (Photo: 123RF)
LES KEYS DE LA CRYPTO is a section that patiently decodes the world of cryptocurrency and its stock market, industrial and media turmoil. François Remy’s mission is to identify promising entrepreneurs, decode technical progress and anticipate the industrial and societal impacts of this digital currency.
(Illustration: Camille Charbonneau)
Hard to believe, given the current tumble in the price of cryptocurrency. Yet the claim comes from a Canadian subject matter expert, whose bitcoin-backed home loans have generated over $2 billion in interest.
“Bitcoin is auditable, transparent and verifiable, and its supply is limited. The supply of dollars over the past two years has exploded, nearly doubling and that’s what you’ve seen reflected in asset prices everywhere. Bitcoin is therefore a great way to protect your savings, and it is controllable and transparent, which the US dollar cannot be. So anyone can check their balance right now and see the status of the entire Bitcoin network in real time. You can’t do that with the US dollar or any other currency,” Mauricio Di Bartolomeo recently claimed on FoxNews.
This name may not mean much to you. Yet it is (yet another) Canadian crypto pioneer. The Toronto company he co-founded, Ledn, is on a mission to help consumers save. This financial services provider received last week an award as a “gazelle”, a company whose valuation exceeds $500 million and which is evolving towards unicorn status (> $1 billion in valuation). Ledn, which now employs around 100 people, also won the NextGeneration Awardan award recognizing players who have changed Ontario’s economic landscape by providing a competitive advantage.
The company has gotten ahead of traditional banks and credit providers by issuing loans denominated in Canadian dollars, but backed by bitcoin. Its first clients included crypto payment operators, exchanges and other digital asset OTC markets that needed to borrow BTC to smooth their transactions.
But for several years, the brand has offered the public savings accounts in bitcoins, currently promising up to 7.5% annual interest. This allows cryptocurrency investors not to let their digital assets lie dormant in their digital wallets or on the accounts of the exchanges where they acquired them.
We are certainly witnessing a historic shift in financial and economic mechanics. For centuries, money was borrowed by banks from savers to lend it to people who want to undertake, recall the two experts in a note. But the cryptocurrency ecosystem now uses the same principle. A source of additional concern for banks.
“Teleporting” Crypto Wealth to the Real World
Not content with these activities, to meet strong demand from a certain clientele, Ledn also claims the “first mortgage loan guaranteed in bitcoins”. The operation is presented as simple: customers can buy real estate using an equal amount of cryptocurrency as collateral.
This is a real improvement on the current way mortgages work where banks advance money based on future income and not what the asset is really worth. “By using bitcoin as collateral, it actually allows you to borrow against an asset of equal or greater value,” the Ledn co-founder and CEO said at the Bitcoin Summit 2022 last month.
For some bitcoin holders, those who believe in the technological virtues of this web money, not having to sell their BTC is essential. And this mortgage product is a great way to “teleport some of that bitcoin wealth into the real world,” according to Mauricio Di Bartolomeo, co-founder and chief strategy officer of Ledn.
Be careful with these crypto-mortgages
Securitizing (Editor’s note: Operation by which banking establishments mobilize their receivables.) real estate loans with bitcoin, this is an interesting strategy. But other experts feel a sense of catastrophic deja vu. The financial crisis of 2008-2009 not to mention it.
“As long as property prices continued to rise, buyers were able to refinance and everyone got paid. However, when housing prices imploded, millions of low-credit borrowers defaulted. The rest is history,” recalls the American rating agency Weiss.
There are plenty of reasons to worry: the poor performance of equities this year, a real estate bubble in the United States, rising interest rates. And, incidentally, a bitcoin that is worth half its peak in November 2021.