Dave Carlson recently wanted to borrow about $1 million to
fund operating expenses at Giga Watt, his cryptocurrency-mining operation based
in East Wenatchee, Wash. The mining, which generates new units of
cryptocurrency using specialized computers, requires vast
amounts of electricity; Carlson said he spends about $250,000 a
month on power. He could have exchanged some of his crypto for cash, but he
didn’t want to miss out on future surges in value.
For Carlson and other cryptocurrency investors, this is the
conundrum: They may be millionaires, but very few businesses accept bitcoin,
Ethereum or other digital currencies. People who own crypto typically exchange
it for U.S. dollars to make purchases, missing out on potential value
increases, paying hefty fees or incurring
For a small number, a fledgling lending platform has
provided a solution. The Denver-based startup Salt matches borrowers with
lenders that provide high-interest loans backed by digital currencies. Clients
transfer their digital holdings to an account overseen by Salt, which keeps the
funds as collateral in exchange for U.S. dollars, typically up to 40% of the crypto’s
current value. When the loan is repaid, Salt transfers the digital currency
back to the borrower. While Salt is only about a year old, digital-currency
insiders say such platforms could ultimately unleash the billions of dollars of
value trapped in cryptocurrency into conventional markets.
Salt is “completely changing how crypto holders can deploy
their wealth,” said Trevor Koverko, chief executive of Polymath, a firm that
brings securities to the blockchain. “Spending your cryptocurrency at the
grocery store or to pay your rent is pretty hard to do.” (Koverko is not
affiliated with Salt.)
Salt was founded by four early adopters of cryptocurrency.
CEO Shawn Owen was the chief operating officer for Southern Concepts Restaurant
Group, a chain that took bitcoin. Attorney Benjamin Yablon accepted bitcoin at
his law practice, which centered on emerging financial-technology platforms and
regulatory compliance; he now heads up global strategy for Salt. The other
founders, Blake Cohen and Caleb Slade, worked in real estate and
mobile-application development, respectively.
Owen came up with the idea for Salt in 2012 when a bank
declined to recognize his bitcoin holdings as an asset. “This was a lightbulb
for me,” he said. “I wanted to develop a way to leverage this asset.”
Salt said its network of lenders had loaned $40 million but
has received applications for about $1.5 billion worth of loans. The company is
approved to do business in 15 states including South Carolina, Georgia and
Alabama. For businesses, the average loan size is $5 million. For individuals,
it’s about $250,000.
Salt said its lenders are high-net-worth individuals and
investment groups, and have little say about whom the company lends to. But
they do set the loan’s terms, including interest rates, which vary widely. When
investors sign up, they lay out the terms under which they want to lend,
including the interest rate they expect; Salt matches them with deals that meet
Carlson, a technology investor and former Microsoft
software engineer who has been involved with cryptocurrency since 2012, said he
has struggled to find ways to leverage his bitcoin to buy bricks-and-mortar
assets. He borrowed $1 million through the platform last year (he declined to
disclose the interest rate). He and his wife took out an additional $600,000
loan from Salt to buy two
vacation-rental homes in Quincy, Wash., which the couple paid
for in cash.
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Mark Warden of Porcupine Real Estate, a real estate
brokerage in Manchester, N.H., has worked with home buyers and sellers who own
bitcoin, and said there is a demand for the service. “There are people out
there sitting on pretty big holdings that will take a hit when they cash out,”
he said. “They want to be able to borrow against their crypto.”
Salt’s borrowers create a profile, with annual membership
fees starting at $2,750 and going up to 100 times that, depending on the size
of the loan and value of the collateral. They make monthly payments in U.S.
dollars. The platform also charges a 2% servicing fee. Salt performs standard
anti-money-laundering checks but does not check credit, Owen said.
Owen said the company has also instituted a margin-call
type procedure, whereby borrowers must add additional digital currency as
collateral when the coins fall below a certain value. They can also pay down
some of the principal in U.S dollars to lower the loan-to-value ratio, or allow
Salt to sell a portion of the collateral. If they don’t, some of their
collateral will automatically be sold.
Critics say the model is risky for lenders, given the continued
volatility of bitcoin and other cryptocurrencies. Bitcoin’s
value dropped from a high point of almost $20,000 in December to about
$6,000 by March. It was valued at approximately $6,155 on Tuesday.
Established lenders find the prospect of lending against
digital currency too risky, said Ace Watanasuparp, a regional vice president
for Citizens Bank. “You could lock one of these loans in at a certain value
today, and tomorrow it could plummet,” he said. “It’s too scary for financial
Steve Weiner, an investor in Salt’s debt fund, said he
hasn’t been put off by the recent plunge in bitcoin’s value. “If you expect to
earn such high returns, you’ve got to accept the risk and the volatility,” said
Weiner, who heard about Salt through his business partner, whose son is one of
Weiner, president of Signet Partners, a financial
consultancy, said he put up an initial $75,000 more than a year ago, relying on
Salt to vet the borrowers. He said he has been receiving interest, and if all
goes smoothly, he is slated to earn a 15% to 20% return. He has never owned
cryptocurrency but said he was intrigued by blockchain technology and its
potential to transform financial records.
Carlson said he’s grateful to have a way to diversify his
portfolio, especially with the recent volatility in bitcoin. “We’re already
living a risky life being in crypto,” he said.
for the original article from The Wall Street Journal.