BankProv taps into the crypto market with Ethereum-backed loans
- BankProv is financing Ethereum-backed loans through a collaboration with crypto custody bank Anchorage Digital.
- Institutional investors can now get USD on credit without liquidating their ETH holdings.
One of the oldest banks in the U.S. has started financing Ethereum-backed loans. BankProv, previously known as The Provident Bank, recently announced a collaboration with Anchorage Digital, the first federally chartered digital asset bank in the country. This collaboration allows Anchorage Digital to provide its institutional clients with a USD line of credit backed by Ethereum.
BankProv, the tenth-oldest bank in the U.S., had been operating for nearly 200 years as The Provident Bank before its modern rebrand in July 2020. Currently holding about $1.5 billion in deposits, the bank has been pushing to recruit crypto firms as clients since its rebrand last year.
Through the new collaboration, institutional clients who use Anchorage Digital for custody are now able to use their Ethereum as collateral for USD loans, without having to liquidate their holdings. Anchorage maintains custody of the ETH, using it as collateral in case a client is unable to repay the dollar loan.
“Our partnership with Anchorage Digital addresses the market’s ongoing need for accessible USD for Ether-heavy borrowers,” said Dave Mansfield, CEO of BankProv. “We are providing $36 million of USD financing in the form of a line of credit to Anchorage, who then lend the USD out to investors with investments in Ethereum and a need for capital.”
While crypto lending firms such as BlockFi, Genesis and SALT have been providing Ethereum-backed loans for some time, this is the first time that ETH-backed loans are being offered through a traditional, FDIC-insured bank.
“Anchorage has been offering a variety of crypto loans for some time now, but having one of the country’s oldest banks as our partner gives both of us the opportunity to bring scaled access to our clients,” said Diogo Monica, co-founder and president of Anchorage Digital. “Working with BankProv means gaining much greater access to USD that we can lend to borrowers who hold Ethereum.”
The ability to get bank-grade loans on Ether is one of many developments that will increase the awareness and adoption of Ethereum among traditional market players, according to Christine Kim, a research analyst and Ethereum expert at CoinDesk. “This is a significant market development that shows traditional banks are warming up to the idea of cryptocurrencies holding long-term value,” she said. “The fact that these are ETH-backed loans also indicates that there is a growing number of institutional investors backing Ethereum and demanding regulated options for credit on their ETH holdings.”
What does the recent cryptocurrency market crash mean for the future of Ethereum and ETH-backed loans?
Concerning last month’s crypto market crash, Mansfield says BankProv recognizes that crypto assets are much more volatile at this time than traditional securities. “Due to the volatile nature of crypto-backed loans, we have built a robust loan monitoring, margin call, and underwriting process to ensure that our exposure risk is mitigated to the fullest extent possible,” he said. “And to further ensure safety, we have chosen to work with only a select few partners like Anchorage, who have world-class collateral management technology and underwriting standards”.
Financial institutions need to look at the crypto landscape as a whole, rather than a blip in price charts, according to Anchorage’s Monica. “Forward-thinking banks and Anchorage alike recognize the entire digital asset market as an ever-evolving sector, so large institutions like the ones we serve have different use cases for digital assets, and they weigh the risk-reward involved in lending; they also aren’t scared by volatility.”
CoinDesk’s Kim added that crypto markets are notoriously volatile, and the May market crash was a healthy reminder to all participants, new and old, that bull runs don’t last forever. However, she also pointed out that the growing acceptance of crypto-backed loans reveals that traditional financial institutions are becoming more open to them. “The beauty of market developments like the introduction of Ethereum-backed bank-grade loans is that they reflect how traditional players are starting to view these assets – even with their volatility – as worthwhile investments that need to be taken seriously and are likely here to stay.”