Xapo Bank enters bitcoin-backed lending market with access to USD loans of up to $1 million

Xapo Bank, primarily known for its bitcoin custody and interest-bearing account offerings, has branched out into bitcoin-backed U.S. dollar loans, hoping to support the long-term holding of the foremost cryptocurrency.

Qualifying Xapo Bank members now have access to loans of up to $1 million — secured by their bitcoin holdings — with flexible repayment schedules of 30, 90, 180 or 365 days and "conservative" 20% to 40% loan-to-value ratios.

The infamous collapse of centralized crypto lenders like Celsius and BlockFi in 2022, an accelerant of that year's bear market, significantly eroded trust in the sector, causing borrowers to become increasingly cautious in using such products. The key difference here is that Xapo is a fully licensed bank, unlike Celsius and BlockFi, which, while regulated, were not licensed to operate like traditional banks in the same manner. Xapo Bank is hoping that will be enough to attract people back to the sector, aiming to provide a trusted and regulated platform offering responsible lending solutions to meet the growing need for access to liquidity while preserving the long-term value of bitcoin holdings.

"Many long-term bitcoin holders have steered away from crypto-asset-backed lending after seeing predatory lending practices and products they couldn't count on," Xapo Bank Seamus Rocca said in a statement shared with The Block. "That's why we're doing things differently at Xapo Bank. We give our members the flexibility to pursue their long-term investment strategy while still accessing their bitcoin's value when needed. This is what bitcoin is meant to be, not just a powerful store of value, but an asset that puts financial control back in your hands."

The company said that crypto assets are often the first to be sold when liquidity is needed. However, this new product allows qualifying members to leverage their bitcoin holdings as collateral to access U.S. dollar credit without having to sell them — unless the bitcoin price falls to a level below the loan-to-value threshold, in which case additional collateral is required to avoid liquidation.

"This preserves the potential for long-term appreciation of their bitcoin investments and offers lower short-term loan rates compared to typical credit card providers while benefiting from flexible repayment terms and robust security measures," the firm said.

How does it work?

Eligible members can calculate their borrowing limit within the Xapo Bank app alongside a transparent final repayment amount and interest rate. Funds are instantly deposited into the member's USD bank account upon approval, with the corresponding bitcoin held in a vault until the loan is repaid.

Members also have the option to repay early without incurring any penalties or early repayment fees, with a real-time loan health checker providing updates on the status of a loan and potential risk factors.

Users may be able to borrow more than their pre-approved amounts pending additional affordability checks, subject to certain criteria, the firm said.

What is Xapo Bank?

Founded in 2013, Xapo Bank transitioned from a Bitcoin wallet to an e-money wallet and then to a “digital-first” retail bank and virtual asset service provider (VASP) custodian. Xapo combines a physical bunker with MPC technology and guarantees USD deposits up to the equivalent of €100,000. MPC, or multi-party computation, is a cryptographic technology that can improve existing multi-sig techniques, effectively allowing wallet keys to be split between multiple parties.

Last May, Xapo Bank enabled users to make bitcoin deposits via the Lightning Network in collaboration with Lightspark, co-founded by former PayPal President David Marcus. In August, it then became the first UK bank to enable interest-bearing bitcoin and fiat accounts after successfully passporting its banking license into the country.