Institutions Use Bitcoin to Support Pension Funds, Add BTC to Loans

According to the report by CNBC on November 22, Newmarket Capital has completed a hybrid loan between traditional real estate and Bitcoin collateral, introducing a new approach in the lending industry. The loan was used to recapitalize a 63-unit apartment property in Philadelphia and added 20 Bitcoin to the collateral package. This transaction allows the real estate sponsors to refinance the existing mortgage, improve their capital, and add Bitcoin to the loan collateral. Andrew Hohns, the founder of Newmarket Capital, explained that the combination of these asset types provides better protection for lenders compared to traditional loans secured solely by real estate. "By blending Bitcoin with credit, we can take a medium-term view on Bitcoin while enhancing the security of the loan." The 10-year loan has a minimum 4-year Bitcoin holding period in an escrow account. Borrowers can prepay the loan at any time without penalty, an uncommon feature in commercial finance. If the loan is repaid before 4 years, the real estate will be released, but the Bitcoin will remain as collateral until the minimum holding period ends. Hohns emphasized that this structure can benefit pension funds facing an asset-liability mismatch. "Pension funds are seeking yield in high-return, leveraged, or niche strategies." "By blending high-quality credit with Bitcoin, we are providing an attractive yield opportunity on a minimal risk basis, without relying on traditional high-risk investment forms." This approach assumes a positive long-term trajectory for Bitcoin, helping to alleviate concerns about short-term volatility. Historical data shows that during 4-year holding periods, Bitcoin's returns have always been positive. "Over the 4-year holding period, the lowest return we've recorded is over 23%," Hohns shared. This growth potential can play a crucial role in bridging the funding gap for pension fund investment portfolios, especially when combined with stable credit assets. This loan structure also helps asset managers address inflation challenges and portfolio diversification. By integrating Bitcoin, the loan provides an opportunity to access an asset that may outperform inflation over time, offering a hedge against the purchasing power erosion affecting traditional fixed-income investments. According to CNBC, the combination of these asset types represents a shift in how the traditional finance industry perceives and utilizes crypto. This signals the acceptance of Bitcoin as a viable component in complex financial transactions, potentially influencing lending practices in the future. *Escrow account is an intermediary account used to hold money or assets of one party until the conditions of an agreement or contract are met. This account ensures that all parties involved in a transaction fulfill their commitments before the transaction is completed.