Fidelity and BlockFi Partner to Provide Bitcoin-Collateralized Cash Loans

Fidelity Digital Assets, the crypto-focused arm of investment giant Fidelity Investments, is expanding its service offering to customers. Per a Bloomberg report from earlier this week, the crypto investment subsidiary has partnered with top crypto lender BlockFi to disburse loans to institutional investors looking to pledge Bitcoin as collateral.

Easy Loans for Bitcoin Hodlers

As the report explained, the loans will come from BlockFi. Fidelity’s institutional custody clients will be able to get cash from their stored Bitcoin with the company. As long as they also have accounts with BlockFi, they won’t need to move their coins before getting the loans. 

Fidelity pointed out that it was targeting customers like over-the-counter (OTC) trading desks, mining outfit operators, and hedge funds.

Many of these need overcollateralized lending options to access liquidity without losing their long positions on Bitcoin. Those with mounting business expenses can also use the cash to build hedge strategies to meet their commitments.   

The partners have agreed to set a 60 percent loan-to-value ratio. This means that every $10,000 in collateral can back $6,000 in borrowed funds at most. 

The parameter will most likely change in response to customer demands and needs, so it could always increase over time. Fidelity’s spokesperson told news sources that the service responds to a need for increased capital efficiency in the crypto space.

With this move, Fidelity hopes to improve capital efficiency, while also focusing on asset stability and safety through its trading and custody services. Fidelity also asserted that it doesn’t hold any role in the loan setting. Its job is primarily limited to Bitcoin safeguarding, with BlockFi governing loan terms. 

Fidelity’s Big Year

The move underscores what has been a primarily interesting year for Fidelity Digital Assets. The company has expanded its service rather well, taking advantage of the increase in institutional demand for cryptocurrencies.

In August, the company filed a Regulation D exemption application with the U.S. Securities and Exchange Commission (SEC) for a Bitcoin-based financial product. Known as the Wise Origin Bitcoin Index Fund, the product was classified as a “pooled investment fund,” per Fidelity’s filing.

The fund touts a $100,000 minimum investment, with the filing listing it under a 506(b) federal exemption. With this exemption, Fidelity will offer the product to as many accredited investors as it wants. However, only 35 non-accredited, finance-savvy investors can participate. Fidelity will also not be able to advertise the product to the general public.

The company also expanded its product offering to Asia. Per a Bloomberg report in October Fidelity partnered with Singaporean startup Stack Funds to move into the Asian market. 

With the partnership, Stack Funds will offer its clients access to Fidelity’s custody services. This will help both firms meet the rising Bitcoin demand from high-profile investors and family offices in the region.

Christopher Tyrer, head of Fidelity Digital Assets Europe, added that the partnership will help the firm better view investor demand, hoping for more service offerings in the future.