A Toronto-based fintech company that offers bitcoin-backed loans to crypto-friendly investors is now expanding its portfolio of products to include bitcoin-backed mortgages.
Ledn Inc., which calls itself a “global digital asset savings and credit platform,” announced Wednesday that it has raised $70-million in new funding, led by Connecticut-based crypto-focused venture capital company 10T Holdings. The money will be used, in part, to launch a bitcoin-backed mortgage product, which Ledn claims is the first such product in Canada.
Bitcoin-backed mortgages, according to Ledn co-founder and chief strategy officer Mauricio Di Bartolomeo, are geared toward holders of bitcoin who do not want to liquidate their crypto assets and are often cash-poor, but would like to take out a sizable loan to either refinance their existing home or buy a new one.
For example, if you own 10 bitcoin, valued in the current market at more than $600,000, Ledn will allow you to borrow up to 100 per cent of that value. If the house you are looking to purchase costs $1-million, Ledn will lend you up to $800,000, or 50 per cent of the combined value of the bitcoin and real estate. If a borrower defaults on the mortgage, Ledn has a claim on the combined value of the home and bitcoin, including any additional price upside.
“The idea for a bitcoin mortgage came from existing clients we had who were using our bitcoin-backed loans. They were crypto investors who had a large amount of bitcoin holdings and wanted to leverage it without having to sell their bitcoin,” Mr. Di Bartolomeo said.
“We only advance 50 per cent of the value of the collateral, to hedge against the volatility of bitcoin,” he added.
The company, which is valued at $540-million in the latest funding round, claims it has a growing wait list of clients ready to take out bitcoin-backed mortgages and expects to have $100-million in mortgage originations by the end of the first quarter of 2022.
Ledn has not specified what exactly the interest rate on the mortgages will be, but states on its website that it would be lower than the interest rate of its bitcoin-backed loan product, which is 9.5 per cent.
James Laird, co-founder of Ratehub.ca and a veteran mortgage broker, believes that Ledn’s mortgage product will probably only appeal to a minority of investors. “I think there will definitely be people who use the product, but they’ll be those who are strong believers in cryptocurrency and do not want to liquidate their crypto. It’s not going to take over the mainstream,” he said.
Guidelines issued by Canadian securities regulators in March called for all crypto companies that have Canadian clients to register with their respective provincial regulators. To date, Ledn has been in touch with the Ontario Securities Commission about its various crypto-lending products, but is not yet fully regulated by the agency. However, there are very few rules that govern how private mortgage companies can issue mortgages, according to Mr. Laird. “There’s absolutely nothing wrong, from a regulatory point of view, with what Ledn is doing with mortgages,” he said.
Some mortgage companies are already issuing crypto-backed mortgages.
Small Toronto-based lender Matrix Mortgage Global announced this year that it would begin accepting bitcoin, ethereum and a number of stablecoins as deposits or down payments for the purchase of a home. Unchained Capital, a financial technology company based in Austin, Tex., also offers bitcoin-backed mortgages for home purchases or for investors to pay rent. The company markets its crypto loan products as a solution to “limiting tax liability” and “maintaining one’s long position in crypto.”
“I can see why this would appeal to people that hold large amounts of bitcoin,” said Matthew Burgoyne, a Calgary-based blockchain and cryptocurrency lawyer at McLeod Law LLP.
He said he knows of mortgage investment corporations that are flirting with the idea of incorporating crypto into their business models.
“They are looking at accepting crypto from investors who want a mortgage, and also looking to accept crypto from people who want to pay back their loans.” But there are still significant systemic risks to the lender, Mr. Burgoyne believes. “It obviously exposes the lender to volatility of real estate, and of crypto.”
Mr. Laird pointed out that Ledn is actually offering much less from a loan-to-value perspective compared to a traditional bank. “With a regular mortgage, you can get up to 95 per cent from the bank if you buy a house for less than 500K. Here, they are offering just 50 per cent of the total value of collateral.”
Ledn’s co-founder Mr. Di Bartolomeo said that depending on the uptake of the bitcoin mortgage product, the company could expand its product offerings to include ethereum-backed loans or mortgages. “It might happen. For now, we are just focusing on rolling out the bitcoin mortgages.”
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