On July 1, 2025, Ledn’s shift to a 100% Bitcoin-focused strategy underscores a growing trend: Bitcoin dominance. While seemingly beneficial, the intense focus on Bitcoin from corporations, institutions, and governments presents significant challenges for the Bitcoin lending market.
Full Focus on Bitcoin
Ledn’s move to drop support for other cryptocurrencies in favor of Bitcoin simplifies operations and aligns with the rising wave of Bitcoin maximalism. Co-founder Adam Reeds frames this as a “return to the roots,” prioritizing risk management by keeping assets within Ledn or with trusted partners, avoiding yield farming. This resonates with a growing segment of the crypto community exclusively focused on Bitcoin.
Bitcoin-Backed Loans: A Balancing Act
The Bitcoin lending sector has faced turmoil, exemplified by the 2022 collapses of Celsius, BlockFi, Voyager, and Genius. However, Ledn remains optimistic, citing favorable tailwinds like the Trump Administration’s efforts to ease crypto custody rules (specifically, the repeal of SAB 121).
Another positive influence is the accumulation of Bitcoin by Bitcoin treasury companies (like Strategy, Nakamoto, and Metaplanet), governments (through seizures, mining, etc.), and institutional custodians (BlackRock, Fidelity). This accumulation, while stabilizing the lower end of the Bitcoin price [good for lenders], can also have a negative impact by reducing the Bitcoin supply available for lending.
Key Quote: Reeds stated in February 2025 that the lending sector is “incredibly short dollars” and needs more institutional investment to facilitate Bitcoin-backed mortgages and other loans.
Bitcoin derivatives markets also contribute to price stability, which benefits Bitcoin lending. Co-founder Mauricio Di Bartolomeo argues that Bitcoin lending reduces price volatility, tightens spreads, and improves the health of spot short markets [used as hedges].
New Threats: The Liquidity Squeeze
The overwhelming demand for Bitcoin poses a critical threat: a potential liquidity crisis. Individuals and institutions are prioritizing accumulation over selling, with Bitcoin treasury companies, asset managers, and governments locking up more Bitcoin than miners produce.
This hoarding can lead to:
- Bitcoin Deficit: A shortage of Bitcoin available for lending.
- Increased Borrow Rates: Higher costs for borrowing Bitcoin on spot short markets.
- Shrinking Short Interest: Reduced profitability for short selling.
- Value Clarity Issues: Difficulty reflecting bearish sentiment in the derivatives market, leading to unpredictable price behavior and increased volatility.
- Unprofitable Shorting: Shorting on futures markets becomes risky and less profitable, potentially causing massive liquidations for Bitcoin bears as the price rises.
As Bitcoin becomes harder to borrow and the short market shrinks, option market liquidity will suffer. The Arbitrage trading will become less flexible, which may lead to distortion in the futures market prices as they may face higher discrepancies from the spot market.
Individual Risks: These challenges expose individuals to increased counterparty risk, reliance on trust, and the need for leverage—ironically, the very issues Bitcoin was designed to solve.
Conclusion
The crypto market’s interconnectedness means that every action has ripple effects.
The heavy demand for Bitcoin from institutions, corporations, and governments could lead to a Bitcoin lending squeeze, negatively impacting derivatives markets, increasing price volatility, and causing liquidations on spot short markets. This creates a potentially vicious cycle. However, favorable regulation and stabilized Bitcoin prices could lead to a more positive outcome.
