Wall Street And Crypto Firms Revive Lending Market After Industry Shakeout

After nearly collapsing during the last crypto downturn, digital asset lending is making a comeback, with a new generation of lenders re-entering the market.

What Happened: Both traditional financial institutions and blockchain-native companies are reintroducing capital to meet the growing need for liquidity and leverage within the sector, Bloomberg reported.

Over the past month, several major players have unveiled new lending initiatives.

Cantor Fitzgerald has launched a Bitcoin lending business backed by $2 billion in capital, signaling Wall Street's renewed interest.

At the same time, Blockstream has secured billions for its crypto lending funds, while Xapo Bank has begun issuing Bitcoin-collateralized loans of up to $1 million.

"We're seeing larger institutions taking the lead this time around," said David Mercer, CEO of LMAX Group. "More banks are gearing up to provide financing solutions for major institutions in the crypto space."

The boom in crypto lending during the 2021 bull market saw firms like Genesis, BlockFi and Celsius offering unsecured loans to trading desks and hedge funds.

However, as crypto prices tanked, those lenders collapsed, dragging liquidity out of the market.

Their bankruptcies left many crypto businesses scrambling to access short-term financing.

Rob Hadick, general partner at venture firm Dragonfly, pointed out that the market has struggled to replace those lenders. "There's been a vacuum when it comes to firms offering leverage," he said. "The absence of solid risk management across the industry has been a persistent problem."

With traditional banks largely avoiding crypto lending under regulatory scrutiny in recent years, crypto exchanges and brokers have tried to fill the gap.

Bitstamp USA CEO Bobby Zagotta believes that may change under the Trump administration, which has signaled a more favorable stance on digital asset markets.

"We expect clearer regulations, which could give banks the confidence to engage," Zagotta said.

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Why It Matters: Today, Bitcoin BTC/USD-backed loans remain one of the most common financing tools for crypto businesses. Yet, volatility in crypto prices has kept many large financial institutions cautious.

Adam Sporn, who leads institutional sales at BitGo, explained, "Most borrowing demand we see today is for cash. The lack of large banks lending has held back the space."

The shift in sentiment is being attributed to signals from policymakers, including President Trump, who has reiterated his administration's support for crypto-friendly regulations and stablecoin legislation.

According to Hadick, "There's growing enthusiasm among traditional lenders, who now feel reassured by the current regulatory environment."

As new lenders step in, the terms of crypto credit are also changing. Loan-to-value ratios are lower, requiring borrowers to post more collateral upfront to secure loans and reduce default risks.

For now, undercollateralized lending remains rare. "If we do see the return of undercollateralized credit for prime brokers and institutions, that will be a key step in improving liquidity across the board," Hadick added.

While many welcome the return of institutional lenders to crypto, some remain cautious about systemic risks.

Austin Campbell, CEO of stablecoin firm WSPN USA and a professor at NYU, noted, "Crypto alone can't reinvent the lending playbook overnight. Bringing in traditional credit expertise is essential to stabilize the sector."

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