Announcing new interest rates for all new loans as of today! Stablecoin market cap grows 3X in 2021. Bitcoin to become legal tender in El Salvador.

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The Bitcoin Economic Calendar:

Week of Monday June 7th to Sunday June 13th:

We’re lowering our interest rate for new loans as of today!

As of today, June 7th, 2021, we’re cutting annual interest rates on our loan products from 12.0% to 9.5% for all new loans!  All other terms remain the same, and of course, you’ll still be able to repay our loans at any-time without penalty.  Including a 2.0% administrative fee, this puts our all-in rate at 11.5% APR. That’s less than 1% per month, all-in!

Just like our savings rates, our loan rates adjust to market conditions in order to pass on great rates to our clients while ensuring they are sustainable for our on-going operations. We’ll be diving into the market dynamics that have led to this change that enables us to offer even more competitive rates to our clients below.

Market dynamics leading to lower rates for new loans

There are several factors at play that lead to Ledn being able to source capital at a lower cost in the current market conditions, and pass that benefit to our loan clients. We’ll be covering a few: more USDC holders looking to earn interest, more institutional investors financing bitcoin-backed loans, and the current compression in alternative market opportunities.

1. More USDC in search of yield:

The market capitalization of stablecoins has grown by more than 3X, from ~29 Billion in January to just over 100 Billion in June 2021. 

As you can see from the chart above, the market capitalization of UDSC has grown even faster. It has increased more than 5X, from 4 Billion on January 2nd, 2021, to 23 Billion on June 5th, 2021. 

The balances on our USDC Savings Accounts have seen a similar trend. This means that there are more USDC available at Ledn, and at other institutional venues, looking to earn interest. This growth in supply has made financing for bitcoin-backed loans more easily available. Ledn’s scale and operational track record also provides negotiating power that we are able to leverage to the benefit of our clients, and to make our loans as competitive as the market conditions permit.

2. More institutional investors looking to finance bitcoin-backed loans:

Ledn’s 0% loan loss ratio, as well as the size of our active loan book, makes Ledn  an extremely attractive counterparty to numerous financial institutions. As a result, several industry players now compete and bid to finance our book at a lower cost of capital.

Ledn can take advantage of these market conditions to negotiate better rates and terms from institutions, and pass on these benefits  to our clients. 

Recently, several institutions at scale are looking to enter the space to earn attractive returns by offering to finance experienced operators with open loan books at scale such as Ledn. 

3. Compression in alternative market opportunities:

The bitcoin markets used to be full of high-yielding market-neutral trades, such as the now-defunct GBTC premium trade (converting bitcoin to GBTC units to sell them at a premium, and then rebuying the same amount of bitcoin and more after 6 months) - and the futures basis trade (buying bitcoin today and selling bitcoin futures at a higher price, waiting for the futures to mature  and pocketing the difference). These strategies used to yield double digit returns on average. 

As you can see from the image above, this is no longer the case. Market participants have caught on to the trade and they are now putting downward pressure on the “future” price of bitcoin, which makes the trade less lucrative. It started the year north of 10% and reached upwards of 20%. Now it is trading between 0%-5% - which makes high-single digits interest for lending against bitcoin more attractive.

Market Commentary:

Bitcoin: Price continued to find buyers in the mid-$30k levels, and the price ended the week at $35,808, up +0.37%. 

The news heard around the world this week was that El Salvador’s president, Nayib Bukele, has put forth a bill to become the first country to accept bitcoin as legal tender. The development had networks from CNN to Al Jazeera all covering the news. 

Looking at the chart, the technical formation is not looking favourable. The pattern it is showing is often referred to as a “bearish flag”. This pattern is typically followed by a downwards or sideways continuation. 

In terms of the futures markets, the open interest seems to have settled at levels similar to January 2021, which makes sense as we are at January price levels. 

It will be an interesting week on the back of so many positive macro developments for bitcoin. We expect more conversation and headlines around El Salvador’s announcement this week.

S&P 500: Equity markets are continuing to find comfort in stable bond yields and a stable dollar. Treasury yields were hammered down again this week even on the back of the Fed nearing its targets. Both the 10-year yield and the 30-year yield dropped by more than 1% this week to settle at 1.56% on the and 2.24% respectively.  The U.S. dollar index was pretty much static for the week, up +0.09%.

This helped the S&P 500 close higher by +0.56% at 4,229. The Dow Jones closed higher by +0.65% at 34,756 and the Nasdaq also closed higher by +0.62% at 13,770.

Checking in on the Russell 2000 index, we see that after “faking” a down-side breakout, the index has gone back to test the 2,293 level highlighted by Tom Lee from Fundstrat. For further reference, Mr. Lee had highlighted this level by saying that a weekly close above the level would signal a continuation in the broad-based rally in equities. With last week’s close at 2,286 - it feels like we may get what Mr. Lee has been waiting for this week. 

If this happens, it could be a tailwind for bitcoin and the “innovation/tech” investments which have recently suffered at the expense of energy, commodities, and value stocks. 

We have a quiet week at the Fed but we have important economic data out of the U.S. this week. On Wednesday we get wholesale inventories, it will be interesting to see a surprise to the upside in these numbers, which would validate the thesis that companies are “over-stocking”. On Thursday we get initial and continuing jobless claims, as well as the all-important Consumer Price index - all at 8.30 AM EST. And to cap things off on Thursday, we get the Federal Budget at 2 PM. Look for Thursday to be a decisive day in the markets. 

Gold: After 5 consecutive weeks of gains, gold finally saw some red last week, closing -0.67% at $1,889/Oz. Interestingly, we see that the weekly candle continues to make “higher lows”, which is a positive sign. The next big catalyst for gold may be Thursday’s upcoming CPI number.

DeFi: The index held ground and bounced back this week, closing higher by +9% at 10,004. Ethereum also had a positive week, up +13.41% at $2,710. Interesting to see Ethereum and DeFi leading to the up-side again. However, this time it “feels” a bit more real. 

Ethereum and DeFi continue to take share in the mainstream media narrative - and by now a large percentage of the traditional financial crowd know what Ethereum is, and that it largely powers ‘Decentralized Finance’ protocols. 

As we mentioned previously, stablecoins have increased more than 5X so far into 2021, and investments in the decentralized finance space continue to grow. 

For context, Solana (pictured above after raising $450 Million) is one of the blockchains that USDC runs on top of. 

Looking at other market health signals, trading volumes for crypto are at an all-time high.

Volumes surpassed $2 Trillion in May, making it the 4th consecutive month where exchanges traded volumes of over $1 Trillion. Think about that for a second, this market trades roughly the equivalent of its market capitalization in one month. 

For context, gold has a market capitalization of ~$10 Trillion and trades approximately ~$4 Trillion/month according to average daily traded volume data from Statista.com. 

Difficulty Commentary: Not much to report on this front since last week. The next difficulty adjustment is on track for next weekend and it will bring difficulty down ~8%. 

Mempools are clear, allowing for very cheap and fast bitcoin transactions at the time of writing. You can get into the next block with 1 sat/vbyte - it doesn’t get cheaper or faster than that!

Elsewhere, locking in support for the Taproot upgrade in this mining epoch is very much still at play. The signalling rate is now above 99% - if we close the epoch with signalling at over 90%, we will move forward with the next stage in the upgrade.

It's a big week coming up, and as always, we'll keep you posted on any relevant news throughout the week right here and from our Twitter account @hodlwithLedn

Canadian Central Banking Updates:
Current Target Interest Rate: 0.00 - 0.25%
Current Overnight Money Market Rate: 0.23%
Source: https://www.bankofcanada.ca/rates/

U.S. Central Banking Updates:
Current Fed Interest Target Rate: 0.00 - 0.25%
Current Effective Federal Funds Rate: 0.09%
Source: https://apps.newyorkfed.org/markets/autorates/fed%20funds 

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