According to the CEO of Xapo Bank, wealthy Bitcoin investors are opting to borrow their BTC as collateral and accumulate new Bitcoin with the interest earned, rather than selling their holdings.
A significant shift is occurring in the behavior of wealthy investors who have held Bitcoin for a long time. According to Seamus Rocca, CEO of Xapo Bank, these investors no longer view Bitcoin solely as a speculative asset expected to see price increases. There is growing interest in using BTC reserves as collateral to obtain cash, participating in income-generating products, and receiving interest payments in Bitcoin.
In this model, the investor doesn’t have to sell BTC to make expenditures or pursue a different investment opportunity. They use their Bitcoins as collateral to obtain a loan, thus protecting their position against potential price increases. However, if the Bitcoin price falls sharply, the collateral ratio may be compromised, creating a risk of needing to deposit additional assets or forced liquidation. The cost of borrowing also affects the overall return of the method.
There are two groups of Xapo clients following different strategies. Some early investors, having seen large gains reversed in previous market cycles, are opting for profit-taking. Another group, particularly those who entered the market in 2018 and 2019, are trying to secure liquidity by using their assets as collateral rather than selling BTC.
Rocca stated that approximately 45% of Xapo customers receive interest earned on their dollar savings in Bitcoin. The bank offers a variable base rate of 4.1% paid in Bitcoin for dollar savings. For eligible new customers, the temporary rate can increase to 4.6%. A separate Bitcoin loan fund offers a target return of up to 4% annually on lending activities.
None of these products are risk-free. While loan funds carry counterparty and repayment risks, BTC-backed borrowing can create the risk of liquidation during price declines.
