Coinbase, the digital currency exchange, will offer bitcoin-backed cash loans to select customers as early as next month, the San Francisco-based company announced on its blog this week.
Customers in 17 states have been invited to join the waitlist to borrow up to 30 percent of their bitcoin holdings. The maximum loan is $20,000 at 8 percent for one year with no credit check.
“With today’s announcement, we want to give our customers even more control over their crypto investments, while offering secure access to cash at the same time,” Thorsten Jaeckel, product manager for Coinbase, wrote on the blog.
Coinbase said it launched the service in response to customers who said they need cash for expenses such as home renovations or car repairs, but prefer not to sell their cryptocurrency prematurely, or take out high-interest loans.
Initially, the loans are available in the following states via the waitlist: Alaska, Arkansas, Connecticut, Florida, Georgia, Illinois, Massachusetts, New Hampshire, New Jersey, North Carolina, Oregon, Texas, Virginia, Nebraska, Utah, Wisconsin and Wyoming.
The exchange, which boasts more than 35 million users worldwide, said it is working to obtain licenses to add more cryptocurrencies as well as to expand to jurisdictions.
Bitcoin.com reported Coinbase will compete with Nexo and Blockfi.
In addition, the website reported Square’s Cash App, a crypto-friendly payments platform, is testing short-term loans of between $20 and $200 at a flat interest rate of 5 percent per month.
Liberty Street Economics, a research blog of the Federal Reserve Bank of New York, said in a post that the usual distinction between “token-based” and “account-based” cryptocurrencies is overly simplistic because several popular digital coins, including bitcoin, could be both.
A token-based system, it said, means a system in which the validation of the object used to pay is needed, while an account-based system verifies the identity of the person paying.
Regular currency, the post said, is a traditional token-based system, where people pay for goods or services and all that is needed is to know that the person has enough valid currency to make the payment.
In June, the New York State Department of Financial Services (DFS), which supervises 1,500 banks and financial institutions and more than 1,400 insurance companies, proposed a conditional licensing framework that promises to make it easier for cryptocurrency startups.
Under the proposal, emerging companies that participate in the program can apply for a conditional license from DFS if they partner with an existing firm authorized by DFS to engage in virtual currency business activity.