Bitbond in Brief
Bitbond is a peer-to-peer bitcoin lending platform that matches business owners and investors around the world. Investors can generate income on assets they would normally hold in their wallets. Borrowers get access to the credit they need to expand their businesses. Basing its business on bitcoin lowers Bitbond’s costs and lets it charge lower fees than peer-to-peer lenders in the fiat world. CoinIQ’s Bitbond review lets you see how your passive holdings can help small businesses around the world.
- Investors see predictable returns on asset holdings.
- Investors get clear signals of borrower risks.
- Borrowers get access to credit without bank loans.
- Only supports bitcoin.
- No fiat support outside Europe.
- Locks up holdings for duration of loans.
- Risks of loan defaults.
CoinIQ provides this article as an informational resource for its users. Deciding on the right investments for a portfolio is an individual decision. Only you can decide whether a this or any other investment vehicle meets your performance goals and risks tolerance. Consult with a professional financial advisor before making any investment decision.
What is Bitbond?
Based in Germany, Bitbond’s peer-to-peer lending platform has a global customer base of borrowers and lenders. Company co-founder Radislav Albrecht explained why he started the company to Germany’s FintechForum:
“When I worked as a consultant on banking related projects I was fascinated by the idea of peer-to-peer lending… I decided that I would like to start my own online lending platform I wanted to make it global so that people could lend each other money from all over the world.”
Bitcoin provided a common currency that would make Albrecht’s vision possible. Over the past five years, the company has facilitated nearly 3,200 loans worth more than $14 million.
From Startup to Crypto Lending Institution
“Hello everyone, Do you want to help make banks obsolete?”
This intriguing question introduced Bitbond to the crypto community in July 2013. The company promised borrowers a simple application and credit check along with competitive interest rates. For investors, Bitbond offered a way to diversify and grow their holdings.
Posting as bitcointalk user Fugger, a Bitbond employee explained the company’s vision:
“I belive [sic] that if we can establish Bitcoin not just as an asset class but also as a basis for a more sound financial system (with relevant services attached to it), it could be a huge step forward for Bitcoin to become a significant alternative to existing fiat currencies.”
Just over a year after Bitbond’s founding, CoinDesk reported that the company had facilitated more than 180 loans worth more than €36,000.
Speaking to Forbes in 2014, Albrecht explained how the company did not rely on individual borrowers:
“Our main target borrowers are small businesses that have been operating for two or three years, or maybe longer and cannot get finance from a bank, possibly because they simply don’t have access to a bank account, or they are a type of business that the banks typically do not lend to.”
Speaking with Banking Hub in 2017, Albrecht explained how its independence from the banking system benefited Bitbond’s customers.
“Banks charge traditional [peer-to-peer] lending platforms a substantial fee for every payment they help process; these fees simply do not apply to Bitbond users… If, for example, investors from Europe, America and Asia wanted to lend money to a small business owner located in Argentina, then the costs of the bank transfers alone would make it an unprofitable investment. With bitcoin however, anyone can send digital money around the world in seconds, for an almost negligible fee.”
Working with regulators
Several bitcoin lending platforms started around the same time as Bitbond, but few survived. BTCJam launched a year before Bitbond and BitLendingClub the year after. Neither company survived to see bitcoin’s hyper-growth in 2017.
BitLendingClub was the first to go. It had a successful record facilitating about 10,000 loans worth an estimated $8 million. BTCJam stretched its operations out into mid-2017, but it too suffered from poor regulatory relationships. Despite issuing 20,000 loans worth $128 million, BTCJam couldn’t survive.
Bitbond, on the other hand, developed close relationships with German regulators and became a BaFin-licensed investment broker in 2016. “We are proud to be one of the first regulated financial services providers in the entire blockchain space,” Albrecht said in a statement quoted by EU Startups. “This creates legal security with investors on our platform and shows, that Germany is a good location for innovative and globally active financial services providers.”
Beside enhancing Bitbond’s reputation, the BaFin license gave the lending platform an advantage in the global marketplace. “With our own BaFin licence that allows us to conduct asset brokerage Bitbond is active independently of banks,” Albrecht explained. “Other FinTech startups normally rent a licence and by that are bound regionally.”
Leadership and investors
Albrecht worked at several German financial companies, including Deutsche Bank, before working at a strategic consulting firm. While there, he specialized in corporate restructuring. Albrecht remains the CEO and has built an executive team with deep financial and technological experience.
- Jarek Nowotka, CTO: Nowotka co-founded several web development companies before becoming Bitbond’s top technology executive in 2015.
- Michael Pinkus, CFO: A former director at IKB Deutsche Industriebank, Pinkus brought extensive experience in alternative finance and small-to-medium business lending to the role of Bitbond’s chief financial officer.
- Henning Franken, general counsel: Franken has worked for a variety of technology and financial companies in Germany.
”The founding team has strong expertise in bitcoin, tech and finance, which played a crucial role in our investment decision.”
That was why Point Nine Capital managing partner Pawel Chudzinski invested in Bitbond’s 2014 seed round. Commenting on the €200,000 success, Albrecht said that investors “want to see a clear market opportunity, and it has to be significant. In our case, the marketplace is global.”
Later that year, Obotritia Capital made an undisclosed investment as well as a commitment to fund $5.4 million in loans through Bitbond. Obotritia owns a commercial real estate lending business and an online company that issues traditional loans to small and medium-sized businesses. The Bitbond investment builds on Obotitia’s history of small business lending.
How Does Bitbond Work?
Bitbond’s borrower profile
The vast majority of Bitbond’s loans (83%) provide business owners with the working capital they need to expand their businesses. Although Albrecht promotes the idea that bitcoin lending serves the unbanked, only 8% of the loans issued through Bitbond go to borrowers in emerging markets.
Most borrowers are business owners in developed markets like the United States and Europe whose imperfect credit place traditional bank loans out of reach. Bitbond gives a C credit score to nearly 70% of its borrowers.
Deposits and withdrawals
Borrowers and lenders in the SEPA-supported countries of Europe can transfer euros directly into and out of their Bitbond accounts. These funds will then convert into bitcoin. All users can transfer bitcoin into their Bitbond wallets directly.
Bitbond does not charge fees for fiat or bitcoin transfers, but network fees may apply.
Borrowing through Bitbond
Small-business owners can borrow as much as $25,000 worth of bitcoin through Bitbond even if their traditional credit scores aren’t very good. By looking at other factors, such as personal income and payment histories, Bitbond lets people make investments they need to grow their businesses.
Applying for a loan
Bitbond makes the free application process as easy as possible. Borrowers enter their personal and business information into the Bitbond system. This includes proof of residence as well as proof of income.
Within 24 hours, Bitbond emails a credit score and maximum loan amount to the borrower. Once Bitbond completes its KYC verification process, the borrower can request a loan.
When requesting a loan, borrowers specify the amount and terms. They must also describe the purpose of the loan in 1,000 words or less. Lenders then have 14 days to review the request and make their bids.
Bitbond deposits the requested bitcoin in the customer’s wallet within 6 hours of the loan getting funded. Since the loan is always in bitcoin, the borrower can withdraw the funds as soon as they enter their Bitbond wallet. All loans have monthly repayment schedules.
Types of loans
Borrowers can choose to have their loans denominated in either bitcoin or fiat. In the case of bitcoin-denominated loans, the borrower pays a fixed number of bitcoins each month.
Bitbond calls fiat-denominated loans “exchange rate pegged loans.” The total amount of the loan, as well as the monthly repayments, are all calculated in US dollars or euros. The actual repayments must still be in bitcoin. However, Bitbond uses the 24-hour mean of BitcoinAverage’s data feed to calculate each day’s exchange rate.
Bitbond has dedicated programs for Amazon, Shopify and eBay sellers. By linking their seller accounts to Bitbond, borrowers get instant credit scores and 24-hour turnaround times on their applications. Loans can arrive in borrowers’ accounts in less than two business days. Bitbond also has programs for business owners who use MercadoLibre, PayPal and other e-commerce systems.
Setting interest rates
Bitbond algorithmically calculates an interest rate based on the borrower’s Bitbond credit score and the duration of the loan. This “risk-based loan pricing” rewards borrowers with good credit scores. Those with poor credit scores still get access to financing since investors accept higher risks in return for the higher interest rate.
Lending through Bitbond
Bitcoin lending lets crypto investors earn money on their assets without having to risk the market’s volatility. With a balanced portfolio, Bitbond estimates investors can get returns of 13% per year.
Making Bitbond loans
To make a loan, you simply browse the listings to find one that meets your returns threshold and risk tolerance. The minimum bid you are allowed to place on a loan is 0.01BTC.
There are two scenarios where a loan becomes active. Loans that are fully funded within the 14-day auction period automatically go live. If an auction period expires, but the investors have funded more than 60% of the requested amount, Bitbond will also activate the loan. Bitbond refunds any bids you submit on loans that do not get funded.
Lending on autopilot
Rather than manually evaluate every loan request, Bitbond’s AutoInvest system will do the work. You decide what your portfolio should look like — such as the mix of loan sizes or geographical diversity — and AutoInvest makes the investment decisions for you.
Lending risks and best practices
Peer-to-peer lending carries inherent risks. If a loan goes into default, Bitbond passes it on to a debt collection agency. Lenders will get whatever funds can be recovered, minus the agency’s collection fees. If all else fails, Bitbond releases the name of the borrower to the lenders so they can take legal action of their own.
Bitbond’s advises lenders to diversify their portfolios as much as possible. That means supporting borrowers in many countries with various credit ratings as well as funding a mix of large, small, short-term and long-term loans.
How does Bitbond make its money?
Bitbond’s revenue comes from the fees it charges both borrowers and lenders. Borrowers must pay loan origination fees which range from 1% to 2% of the loan. A daily 0.01% daily interest fee applies whenever borrowers are late with their payments.
Bitbond charges lenders a fee for servicing each month’s loan repayments. A 0.5% fee applies to monthly repayments of a 3-month loan while a 12-month loan generates 1.5% repayment fees.
From the start, Radoslav Albrecht modeled Bitbond after respected businesses in fiat-world lending. That approach helped Bitbond navigate the early years when regulators looked on Bitcoin with suspicion. Establishing itself as one of Europe’s first regulated bitcoin enterprises, Bitbond thrived while its competitors failed.
The 10% to 13% rates of return Bitbond says its investors can get may not have been impressive during last year’s crypto boom. In today’s crypto doldrums, however, those numbers look more appealing. Bitbond’s reputation and stability make the firm worth consideration.