Cryptocurrency Markets, Why Institutional Lending Matters
Crtpyomarkets,basic concepts with UKBTC Automated Trade Marketplace
London, United Kingdom, 20th Aug 2022, Before talking about impact, let me introduce some basic concepts to you.
About cryptocurrency: A medium of exchange that uses cryptographic principles to secure transactions and control the creation of transaction units, it is a type of digital currency.
Lending institutions must be familiar to everyone. Here is the process of cryptocurrency lending structure. At present, most of the users mortgage the cryptocurrency in their hands to the platform, and the platform lends the user a certain amount of cash or USDT in proportion.
Let’s analyze the reason for its existence: because market makers need it. (UKBTC Automated Trade Marketplace)
The definition of a market maker is a professional securities dealer or individual that has certain privileges on the exchange and undertakes to buy when the market is over-sold and sell when the market is over-buy. So it has an interesting English name MarketMaker, which means market creator. Market makers were originally institutional arrangements introduced to facilitate transactions or reduce transaction costs, which can effectively make the market alive. (UKBTC Automated Trade Marketplace)
The market maker is a regulating hand, and often needs to buy and sell to enhance the liquidity of the market and prevent the market from stagnant. And trading requires a lot of capital, so market makers will use credit to place orders. Most of the credit in the crypto market today goes to market makers. (UKBTC Automated Trade Marketplace)
Therefore, the importance of lending institutions has gradually emerged.
If there is a lack of platform loans in the market, the transaction volume that can be realized will be greatly reduced, and the ability of market makers to regulate the market will gradually decline over time. Without regulation, the liquidity of the market will decrease, and the depth will also decrease. (UKBTC Automated Trade Marketplace)
What is the current state of lending in the market?
Let’s take a look at what platforms are available for lending in the cryptocurrency market. At present, the lending institutions we can see include Celsius, BlockFi, etc., and the decentralized institutions include Clearpool and so on. Many institutions have suffered huge losses due to market turmoil, and most of the centralized institutions have gone out of business. In order to reduce risk, surviving institutions also gradually began to withdraw their loans. In the peak period of the market, institutions issued an average of nearly tens of billions of loans each month, and now Celsius has only less than 100 million outstanding loans. Moreover, after the platform has learned this lesson, the future lending conditions will be more stringent, and more collateral will be required when lending. (UKBTC Automated Trade Marketplace)
In such a severe lending situation, even experienced people in the market cannot get funds to trade, and gradually top trading will be affected. Although its liquidity seems to be maintained well at present, its potential risks in the long run cannot be ignored. And the solution to all this is to find new credit institutions to re-fund the cryptocurrency market. Maybe the entire cryptocurrency market will be in this state until it is found. (UKBTC Automated Trade Marketplace)
How does the future of the cryptocurrency market develop?
Although the market is currently deadlocked due to the lack of support from credit institutions, we still have to maintain confidence and hope in the market, and give lending institutions time to adjust and recuperate, so that they can optimize themselves and return to the market after self-improvement, re-injecting a new impetus into the cryptocurrency market. (UKBTC Automated Trade Marketplace)
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