Fidelity Digital Asset Services has partnered with cryptocurrency lending platform BlockFi to allow its institutional clients to obtain fiat loans by pledging bitcoin as collateral.
Under the partnership, Fidelity institutional clients planning on adopting the initiative will be required to create an account on the BlockFi platform, to facilitate the loan process.
Per the report, Fidelity Investments, the cryptocurrency custodial arm of Fidelity Digital, will provide safe storage for the asset.
Tom Jessop, president of Fidelity Investments, told Bloomberg in an interview today that bitcoin holders who plan on acquiring cash loans without having to sell their BTC can use the new initiative.
Jessop stated that using the popular cryptocurrency to acquire fiat loans is a “foundational capability,” adding that he hopes the initiative becomes a vital part of the BTC ecosystem.
He disclosed that instead of using a typical repo trade approach that requires a tri-party agreement, the loans would be long term.
“We want to develop a world-class brokerage capability for assets of all types,” he added.
BlockFi will be tasked with mitigating the volatility risk associated with BTC by providing at least 60% of cash loans backed by the cryptocurrency.
This tends to manage the losses that may arise if BTC’s value plummets and also create room for “institutions to enter and grow within the digital asset market.”
Zac Prince, CEO, and co-founder of BlockFi, commented:
Having an ability to finance positions is a critical component of financial services infrastructure and this collaboration reflects an exciting development for the digital asset ecosystem.
Fidelity’s move to launch a cash loan package for BTC holders comes a few months after the firm’s survey suggests that more institutional inventors hold the asset.
According to the survey involving 774 respondents from the U.S. and Europe, one out of three investors has BTC holdings.
Fidelity’s finding is backed by the recent bitcoin rally, championed by institutional investors’ entrance into the market.
With the leading cryptocurrency tipped to reach $50,000 by several analysts in the near future, not too many institutional investors who are in dire need of cash will be willing to sell their portfolio at a time when the asset is yet to break the $20k barrier.
Instead, they would prefer to obtain fiat loans and pledge their BTC as collateral, which can be redeemed at any time.
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