I recently had the good fortune to talk with Chris Grundy of Bitbond, a Bitcoin lending site for businesses.
I’ve had a strong interest in this type of lending site, especially ones that lend in Bitcoin, for a long time. One of the more frequent questions I get asked by new users of Bitcoin is how they can get them. While you already need a little bit of Bitcoin in order to lend it, lending is one of the easier ways to grow your holdings.
Bitcoin lending is not risk free, of course, but it is a good way to participate in the Bitcoin community and to actively help build out the Bitcoin economy by supporting those who are building in it.
Mark (Bitcoin Warrior): First, for a lot of people, Bitcoin doesn’t have a very positive association. It’s been linked to scams, thefts, hacks, drugs, and even terrorism in the news, and that’s on top of the fundamental weirdness that people feel when they encounter Bitcoin. What do you think are the real benefits of Bitcoin and what do you think it will take for people to overcome the apathy and misinformation stacked against it?
Chris (Bitbond): It’s tough to pick one or two benefits when new ones are seemingly found every day! In the shadow of the Euro crisis, Coinbase reported that they were seeing a 300% increase in bitcoin buys, meaning that currently bitcoin’s greatest perceived advantage is that it isn’t the Euro!
Looking ahead, I would say that bitcoin’s ability to function without a bank is its key advantage. If you have an internet connection, you can buy and sell, get a loan or invest bitcoin. This is a huge development! Especially considering the difficulty of accessing banks and more traditional funding in the emerging markets.
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Overcoming the common negative stereotypes you pointed out will not be easy. However I am confident that it will happen sooner rather than later as mainstream institutions come around to the benefits of bitcoin. Giants such as Barclays, UBS and Goldman Sachs are already looking to use bitcoin to speed up processes and save money, and young startups like Ascribe, Tidbit or the MIT Bitcoin Project are going to be huge in making bitcoin mainstream.
Long-term, the massive advantages of bitcoin over Fiat currency will become apparent to the mainstream, as bitcoin currency and bitcoin technology become prevalent. The negative connotations you mentioned are simply the growing pains of a technology that has the power to completely transform our lives and the lives of others.
Mark (Bitcoin Warrior): Tell me about BitBond. When was it started and what need was it created to fill?
Chris (Bitbond): Bitbond is a Berlin-based bitcoin lending platform created in 2013. We aim to provide quick and affordable funding for people with small businesses all around the world through the power of bitcoin.
Mark (Bitcoin Warrior): The other big players in this arena are BTCJam and BitcoinLendingClub. What makes you folks different?
Chris (Bitbond): We see traffic from all around the world. The U.S. and Latin America have been particularly important for us recently, as enthusiasm for bitcoin grows and regional currencies remain volatile.
We specialise in small business loans, so the average loan on Bitbond is designed to fund entrepreneurs and small startups. Investors are more varied, with some professional investors taking advantage of our “AutoInvest” tool and some smaller investors simply enjoying that they can support businesses at the other end of the world. I would say, being able to help grow people’s business and enable them to become economically independent is one of the key motivators behind investing in loans on Bitbond, however. You can invest with as little as 0.01 BTC so the entry barriers are really low.
Bitbond’s primary focus are borrowers who need a loan for a business purpose. This means that they typically borrow for a longer time period. Our terms rage from six weeks up to five years which is longer than terms on most other platforms. We also put high emphasis on the quality of our borrowers, we have to reject around 80% of applicants because they don’t meet our credit standards. By doing that, however, we can offer more affordable interest rates which still deliver very competitive returns to our lenders.
One other thing that’s very important to us is transparency. We try to give our users as much data as possible as you can see on our Bitbond statistics page. As far as I know, none of the other bitcoin based lending platforms offer this level of transparency.
Mark (Bitcoin Warrior): My next question is the one that makes me a little leery of investing too much in bitcoin lending. If the price of Bitcoin declines while a loan is out, for the borrower, this is a good thing (presuming they’re purchasing Bitcoin with fiat to pay the loan back). As an investor, I may or may not be happy, but in any case, my total holdings of Bitcoin would have increased. If during a loan the price skyrockets, then it will make it much harder for the borrower to pay back the loan. I think that a lot of people in Bitcoin are expecting, or at least hoping for, an exponential run up. What happens to your lenders in this scenario?
Chris (Bitbond): Good question! Our lenders should be absolutely fine in this scenario. In December 2014 we launched the exchange rate pegged loan. This means that you can chose to have the US dollar as the underlying base currency of your loan. This allows borrowers and investors to alleviate the risk intrinsic to bitcoin denominated lending. In this case, your repayment schedule is in US dollars throughout the lifetime of the loan, making the exchange rate between bitcoin and US dollars irrelevant for your repayments.
Bitcoin denominated loans are still available of course, but bare the obvious risks of volatility. In the case you describe both borrowers and investors may lose money, which is why we recommend exchange rate pegged loans to risk averse investors and borrowers.
We also strongly advocate for the diversification of our users’ portfolios. Specifically, we ask you to invest small amounts across many loan requests from around the world. This way, regional, environmental or political changes and the concurrent risks are better diversified and mitigated.
Mark (Bitcoin Warrior): What’s next for BitBond? What new innovations or businesses are you folks planning?
Chris (Bitbond): One of the next things that we’re planning is to allow lenders to invest via an API. That way they can build their own software client that has their specific investment strategy built in. This is something that is especially relevant to more sophisticated investors. Many users have already asked us to implement this and we’re looking forward to work on this.