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The Bitcoin collateral deposited with Coinbase is safeguarded and is not used for any income-generating program. The collateral is fully redeemable once the interest and loan on the borrowed assets are settled by the user.
American digital currency trading platform, Coinbase Global Inc (NASDAQ: COIN) has launched its loan program whereby users of its platform can borrow up to $1 million with their Bitcoin (BTC) holdings serving as the only collateral required.
“Big news for the #BTC set …We’re excited to announce that eligible customers can now borrow up to $1 Million USD from Coinbase,” the company tweeted.
Big news for the #BTC set …
We’re excited to announce that eligible customers can now borrow up to $1 Million USD from Coinbase.
— Coinbase (@coinbase) November 2, 2021
According to the trading platform, the loan comes with an Annual Percentage Rate (APR) of 8%, and the loan is structured such that users only need to pay the interest due per month at a $10 minimum.
“Each month you only need to pay the interest due ($10 min). Pay off the balance when you’re ready. The Bitcoin you use as collateral remains safely held by Coinbase. It’s not lent out or used for any other purpose,” according to the website.
The loan program comes off as one of the most ambitious offerings Coinbase has been exploring to bring more value to its users. The exchange noted that its users can borrow up to 40% of their Bitcoin holdings, capped at a million dollars, however, the minimum amount users can borrow is dependent on the user’s state of residence.
The Coinbase loan is structured so as to prevent users from liquidating their Bitcoin holdings whenever an emergency need arises. Rather than liquidate, which sometimes can come off with a loss, users can utilize the loan feature and its very low-interest rate which can be accessed through a payment app from Paypal Holdings Inc (NASDAQ: PYPL), or via bank transfer through ACH.
Another clear advantage of the loan option is the taxation clause that will be activated when the user’s Bitcoin assets are liquidated. Current laws recognize cryptocurrencies like BTC as assets whose profits are taxable when sold. Depending on how long the BTC has been held before being sold, taxes as high as 10 to 37 percent can be imposed on the earned profits. The Coinbase loan offer takes off this hassle.
Coinbase BTC Loan: Wading Off Sanctions From Regulators
Coinbase floated its Bitcoin (BTC) loan program despite warnings from the United States Securities and Exchange Commission (SEC) about an abandoned lend program that the regulator deemed may contravene securities laws.
The loan program is markedly different from the proposed savings offerings which seek to payout a 4% APY on locked assets. As highlighted, the Bitcoin collateral deposited with Coinbase is safeguarded and is not used for any income-generating program. The collateral is fully redeemable once the interest and loan on the borrowed assets are settled by the user.
While it appears to have erred on the path of caution, Coinbase made a fuss about its competitors in the United States being allowed to offer savings programs, a development which further stresses the lack of uniformity in the laws that govern the digital currency ecosystem.