Ledn CEO details path to crypto-backed lending boom

I recently chatted with Ledn CEO Adam Reeds about crypto-backed loans. Spoiler: He expects the category could exponentially boom. 

One thing he mentioned to me was, “Price is the best marketer.” 

BTC’s price rose nearly 40% in November — fueled by the victory of pro-bitcoin Donald Trump and scores of crypto-friendly Congressional candidates. It more recently broke the $103,000 barrier. 

Ledn, for much of this year, did roughly $1 million per day of crypto-backed collateral financing (mostly BTC). This allows clients to borrow cash without having to sell their BTC or ETH. The company was doing about 2.5x that amount in November, Reeds noted. 

“The last cycle institutions did the work and they said this is interesting, what about this bitcoin thing?” he said. “Things take time. You’re in an organization with several hundred or several thousand people; you don’t build consensus overnight.”

Read more: Bitcoin sets new all-time high above $100K

Reeds noted previously seeing retail investors with FOMO (fear of missing out) on crypto. This time the institutions seem to be feeling that fear, the CEO added.

Financial services giant Cantor Fitzgerald said in July that it planned to launch a bitcoin financing business. CEO Howard Lutnick, recently selected by Donald Trump to lead the Commerce Department, said at the time the firm intended to launch with $2 billion of lending. 

Reeds said he estimates the global bitcoin-backed loan market (on the retail side) to currently be between $1 billion and $2 billion. 

“The analogy I like is, ‘What if this was like real estate mortgages on the residential side?’” Reeds said. “Well, 60% of homes have a mortgage on them, and what if 60% of bitcoin effectively had a mortgage on it? Suddenly the market’s like $400 billion.”

“That’s with bitcoin at $95,000,” he added. “What if bitcoin’s at $250,000? All of these things start to change.”

Keep reading for more excerpts from Blockworks’ interview with Reeds.

Blockworks: What has changed at Ledn since the US election?

Reeds: We have been approaching more traditional credit funds that would, for example, finance student loan packages — things like that, that are more alternatives.

I would say the gap we’re seeing is that in this market pullback over the last couple years (post-Covid), there was a lot of attractive yield opportunities. So even though institutions kind of get that bitcoin is a pretty safe [asset] (the ones that are forward-thinking), there’s still so much attractive yield to go after…that it’s a bit challenging to say this is why you should finance bitcoin. 

But that’s changing. I think as the interest rates come down a bit, now we’re starting to see more interest because people are a bit worried that they’re not going to get the same yield opportunities they did over the last 24 months.

Most institutions have rules and allocations as to where they can place capital, and it’s hard for them to just buy physical bitcoin.

What MicroStrategy is doing is really smart in saying, ‘OK well there’s a pool of capital out here that can buy convertible bonds. And there’s another pool of capital here that can be MicroStrategy equity. And if I allocate that appropriately … I can maximize how much I can attract in the markets by sizing it and pricing it accordingly.’

So they’re getting really smart about that, and I think we’re excited to do the same thing on the pure lending side, because we’re spending a lot of time thinking about how we tap into more traditional financial setups.

Read more: CME data suggests institutions are field-testing new crypto moves

Blockworks: What might be some other outstanding obstacles for institutions looking to get more involved in the crypto space?

Reeds: I think the biggest thing that gets in the way is the information knowledge gap on some pretty basic stuff. 

For example, custody is not standardized. The next closest thing is saying these are custodians that the ETFs use. And if the [US Securities and Exchange Commission] has approved them for ETF custodians, then that’s pretty safe and we’re using the same custodians; Ledn uses BitGo. 

But there’s no stamp on the custodian that says this is the Grade-A custodian, this is the Grade B. And that’s what [traditional finance] needs; [traditional finance] needs someone else to say this is OK so that they feel OK with it. 

So I think we’re forcing them to think about too many things, which is adding friction to the equation. And the same goes with liquidity providers or trading venues.

I think that’s where regulation will help, and just more news. If you can say, ‘OK maybe it’s not regulated, but Cantor [Fitzgerald] did it this way,’ then it adds credibility to the explanation in the way we’re getting it done.

Blockworks: What might be your price prediction for bitcoin long-term?

Reeds:  What’s interesting about it is…obviously there are fundamentals around user adoption and numbers like that, but there are no sales forecasts or traditional financial analysis of bitcoin. 

So if we push BTC to a price of $250,000, well then $150,000 is a bear market. Every time you have these new lows, then it hits a new step function and we get to the next level. So I don’t think $1 million is unreasonable.

A modified version of this article first appeared in Tuesday’s Forward Guidance newsletter. Subscribe here so you don’t miss tomorrow’s edition.

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