Mainstream lenders have traditionally been wary of cryptocurrencies, especially as they rose to prominence and were not as widely adopted as they are today. However, in recent years many lenders have seen that there are incredible opportunities in crypto, and there is massive demand from both stakeholders and borrowers to move into the space. As more niche lenders and service providers have started to work with cryptocurrencies, digital assets have effectively been eased into the mainstream financial services space. In turn, regulators have relaxed their approach (buoyed by institutions keen to capture opportunities around cryptocurrencies), and larger institutions are looking to start operating in the space, either through lending or in other ways.
While it is safe to expect that more traditional lenders will offer cryptocurrency finance in the future, roadblocks remain in the current business and regulatory environment. Mainstream lenders across the board (but banks in particular) are set up to underwrite loans against traditional asset classes. Managing risk and regulations is also challenging for banks with borrowers with digital assets, given the relative novelty of cryptocurrencies. Traceability and source of funds are particularly difficult points for banks, which have more rigid rules surrounding compliance and AML.
This is not to say that banks have no desire to offer this type of lending or do not appreciate the calibre of cryptocurrency investors looking to borrow. Instead, the current status quo is simply a reflection of the internal setup processes banks rely on that are not yet designed to encompass digital asset classes. It is this, and the sometimes volatile nature of cryptocurrencies that has meant that banks (which are some of the most naturally risk-averse lenders) are generally unable to offer crypto real estate lending. As a result, niche lenders are currently the backbone of this market.