Every day, it seems, there’s a new crypto lending firm opening its doors. In fact, the entire crypto ecosystem is growing by leaps and bounds, but there are just as many naysayers as there are true fans, and the world’s leading financial experts have weighed in on their prognostications, which range from ice cold to steaming hot. But let’s take a deep breath and ask one question I haven’t heard anyone ask yet: On its best day, does crypto lending have the same promise for consistent returns that marketplace lending (MPL) has to offer?
Marketplace Lending’s Continuously Growing Track Record
For any investment, it’s important to perform some due diligence. Every investor has their own criteria when it comes to judging the value of an investment, but there are some criteria that seem to pop up quite often on almost everybody’s list. One metric serious investors like to look at is the track record. Sharestates, for instance, in its 34-point underwriting process takes a look at sponsor track record to determine whether or not to present an opportunity to the marketplace. This track record has to do with the investor’s experience and success regarding real estate deals in general and the specific type of deal (for instance, multifamily) in particular. This is such an important metric that I’d hasten to say that Sharestates wouldn’t continue to grow and expand without its unique approach to underwriting. Compare return statistics.
Veteran marketplace lending investor Peter Renton has been sharing his personal quarterly returns from MPL investments for years now. His blog post from November 22, 2017, for instance, shows a return of 6.64% for the year ending September 6, 2017. By contrast, his results from Q3 2015 yielded a whopping 10.69% return. View Sharestates’ performance statistics.
Marketplace lending has come a long way since Zopa was launched in the United Kingdom in 2005. There has been an ever-growing specialization and branching out into new subsectors with new opportunities for accredited and unaccredited investors in real estate and other verticals, an increasing number of securitizations in recent years, and partnerships between companies serving the sector as well as with traditional financial institutions. While the sector has had its share of bumps in the road, it is entering into a phase of maturity that has been fought for and long-expected. By contrast, the oldest crypto lending platforms are barely a year old.
The Dark and Gloomy World of Cryptocurrencies
My intent here is not to cast aspersions on or to speak ill of cryptocurrencies or crypto lending. Rather, I hold a few cryptocurrencies myself and have accounts with some of the largest crypto exchanges. But the reality is that, as it stands now, the crypto ecosystem is still unregulated, volatile, and full of scams.
Because of its unregulated status, though this is expected to change soon, cryptocurrency prices fluctuate rapidly. On May 14, 2018, for instance, Bitcoin jumped from $8,446.72 at 07:09 a.m. to $8,807.53 at 12:09 p.m. This kind of volatility makes it difficult to lend because, for borrowers, by the time a loan application is approved and the loan is disbursed, the value of the crypto could have deflated so much that its value has been lost. Almost daily, scams are being busted by governments all over the world. The Wall Street Journal conducted a study of over a thousand initial coin offerings and found red flags in hundreds of them.
In contrast, marketplace lending has attracted institutional investors that would not put their money at risk without a strong regulatory system in place, price volatility kept in check, and the risk of loss mitigated by strong underwriting procedures backed by reputation. While I am confident the problems with crypto lending will be worked out over time and that investors seeking consistent returns can realize that potential, at this time, marketplace lending is safer, proven, and looks to maintain its track record for the foreseeable future.