Galaxy Digital Looks to Raise $250 Million for Lending Business
According to a report by South China Morning Post published on January 28, 2019, Galaxy Digital is raising close to $250 million for a credit fund that would offer loans in USD to cryptocurrency businesses. Galaxy Digital is a digital assets bank founded by former Goldman Sachs partner Mike Novogratz.
Novogratz Unfazed by the Bears
Per sources close to the matter, Galaxy Digital will offer fiat loans to firms and ask for collateral in the form of cryptocurrency assets, properties, and crypto mining equipment. Reportedly, Galaxy Digital will close the first round of funding for this new venture in March 2019.
It seems that the free-falling crypto market hasn’t fazed Novogratz in the slightest. In fact, the former Goldman Sachs partner has bet big on crypto this bear market. As previously reported by BTCManager on January 25, 2019, Galaxy Digital was among the VC firms that invested close to $20 million in a blockchain startup named Symbiont.io Inc.
According to people familiar with the matter, demand for loans from crypto businesses has grown exponentially in recent times to the extent that Galaxy now wants to launch their own fund. Notably, the $250 million mammoth fund will be run under Galaxy’s asset management arm.
Market Uneasiness Plays to Lenders’ Benefit
The 2018 bear market seems to be playing to the benefit of crypto lending firms; on January 4, 2019, BTCManager informed its audience on how the crypto lending companies are doing particularly well in this bear market.
Bitcoin, the number one cryptocurrency by market cap fell more than 80 percent from its all-time high value in 2018. The story was similar for all the other altcoins which saw their price erode in the range of 70 to 90 percent.
The fall in price has vastly razed down the funds available for companies in the industry, and seeing this potential opportunity, many firms have flocked to the business of lending loans to companies in exchange for collateral. By taking collateral assets and margin calls, lending firms mitigate their risk.
To save themselves from the unpredictable fluctuation in the price of digital currencies, lending firms typically lend out only about 50 percent of crypto value as cash loan.
For instance, take the New York-based lending firm BlockFi. The company gives out $10,000 in fiat only if the customer deposits $20,000 worth of cryptocurrencies. Their margin calls are triggered whenever the price falls by 35 to 60 percent from the price at which it was pledged.
Zac Prince, BlockFi’s CEO, recently stated that the company has seen its revenues grow 10x since June 2018. He added that the company is planning to offer more products in 2019, including a savings account where clients can earn interest on their crypto holdings.