ICYMI: Waning institutional demand is forcing high-yield crypto accounts to slash rates
Declining institutional demand to borrow crypto is diminishing the ability of platforms like Ledn and BlockFi to offer customers tempting returns on their investmentsThe returns available on crypto holdings have fallen to their lowest levels in more than a year
These platforms take deposited funds and lend them to institutional investors, returning most of the yield to their customers. Through this business, BlockFi saw assets under management increase by 1,711% in 2020 alone, according to theRivals Nexo and Celsius have also seen big growth, with the latter increasing its assets under management by more than 1,900% in less than a year, according to a news release from theAs of March 2021, BlockFi held $14.
The slide is also affecting returns on investments in stablecoins, crypto tokens that are meant to track the value of fiat currencies such as the US dollar. A contango allows traders to profit from buying spot bitcoin while simultaneously taking a short position through options or futures. A fading contango equals decreasing demand to borrow to fund such trades.
Ledn’s rates update notes that the average spread on a $1 million dollar buy order for bitcoin on Coinbase and FTX has halved over the last 3 months. It has gone from around 0.16% in February to 0.08% at present. This affects the return institutions can make from arbitrage trading and in turn lowers the propensity to pay higher borrowing costs.
Ledn’s rates on bitcoin balances up to 0.1 bitcoin fell to 5.25%, and to 2% for all balances greater than that from May, while BlockFi also dropped rates for bitcoin and ether to 3% from 4%, in line with a cut Celsius implemented in March.
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