Florida-based research firm Weiss Ratings call out the risks of crypto-backed loans. It pointed out the economic crisis that is happening in the US as a primary concern. A crypto-backed loan uses Bitcoin or Ethereum as a mortgage from the borrower. This allows the borrowers to keep the gains of their coins as they don’t need to sell them.
Weiss Ratings call out the risks of crypto-backed loans
While talking about the same Weiss, Ratings pointed out a particular company that has been in the limelight. They are a digital banking startup, Milo, that offers 30-year mortgages backed by BTC and ETH. The interest rates of these loans vary from 3.95% to 5.95%. The company pointed out that the poor performance of crypto and stocks this year, rising interest rates, the housing bubble in the US, and policy changes of the feds can be disastrous for the crypto-backed loan.
It looks good when you assume crypto and real-estate prices continue to climb, says Weiss Ratings. However, that doesn’t seem to be the case, as BTC is already down more than 40% from its ATH. The real estate prices are also not going anywhere with rising mortgage rates and changes in policy.
Most analysts are expecting that markets aren’t going to perform great over the next year or so. It is rumored that the Feds are going to raise interest rates again this week. Whatever announcement they make will play a crucial role in the market’s future, says Alex Kruger.
What happens to crypto-backed loans if prices crash?
If we talk about Milo, the startup offering loans backed by crypto, they have a very friendly approach to this. The borrowers do not have to worry about liquidation unless the price of the assets keeps dipping to 35% below the loan amount. If something like that happens, borrowers have 48 hours to increase their collateral to prevent liquidation. Other assets like Stablecoins can also be used during a period like this when the market is too volatile.
What are your thoughts as Weiss Ratings call out the risks of crypto-backed loans? And do you agree with them and think that Milo could suffer heavy losses? Let us know in the comments below. Also, if you found our content informative, do like and share it with your friends.