Bloomberg Warns of 5 Billion Crypto-Debt Bubble

Speaking with former traders and financial experts, the prestigious Bloomberg claims that we might face a debt bubble on the cryptocurrency market which could become a “Lehman Brothers type event”.

The “world’s newest credit market” as described by author Alastair Marsh, these crypto based services have expanded too quickly, growing into a close to 5 billion USD valuation industry in only two years.

Among sources, the article mentions Greyscale Ltd., a blockchain data company, quoting that the number of crypto loan platforms is “proliferating rapidly”, which should be understood as a bad sign.

Listing the causes of the foreseeable turmoil, Marsh mentions too much money “chasing” too few borrowers, increased risk taking, weak standards in lending, he also adds that all of this is “all too familiar” to traditional finance pros.

Introducing the case of Genesis, one of the biggest crypto loan service which has provided over 2 billion dollars worth of credit to institutions, the summary describes how HODLer’s necessity brought this space to life.

They did not want to sell their cryptos at low prices after the bubble of 2017, however they needed some money to spend, the solution seemed obvious: loan them and earn interest, or use as collateral to get fiat.

Although the crypto market is still relatively small, thus the burst of a potential debt bubble might not effect the broader economy, if this trend continues many might get hurt, and the crypto market can also suffer consequences.

Some claim that this phenomena is a marginal issue, especially that the majority of debt has been given to companies and institutions, experts such as Genesis founder Michael Moro believe that more competition leads to prices that “don’t make sense relative to the risk and collateralization”.

Others, like Matthieu Jobbe Duval, an entrepreneur currently setting up a crypto loan platform spoke about the lack of regulation, cheap credit with minimal due-diligence, broad optimism, expressing that “the feeling of deja-vu is there”.