BTCJam

By: David Marc
Updated: July 31, 2018

BTCJam, once the biggest bitcoin p2p loan providers, has shuttered it’s operations as of May 2017. Bitbond is now the undisputed leading bitcoin loan provider in the market, and we recommend checking them out.  Below is our review written in 2015.

If bigger is better, we’ve got ourselves an undisputed leader of the bitcoin lending marketplace in BTCjam. The loan volumes processed through the platform dwarfs the competition, as does the financial backing secured by the company.

The variety of loans on offer provide investors the opportunity to pick and choose a portfolio tailored to whatever specifications required, and borrowers enjoy an enormous list of potential lenders. Loans can be tagged to numerous different currencies, and btcjam has secured relationship with local bitcoin exchanges to accommodate borrowers in different locations such as India, Brazil, the Phillipines and Mexico.

However. BTCjam has earned a reputation as a scammer’s paradise. It seems that any and all borrowers, no matter the likelihood of their ever paying back a loan, are offered a place on the loan list. Massive interest rates further ensure that high-risk borrowers, when faced with paying back APRs of over 200%, will simply walk away. Why not, there is really no recourse for lenders in any event. And, even if this is an unfair description, the platform fee, which is taken when the loan is sourced rather than as it is being paid down gives rise to the perception that BTCjam is less than motivated in filtering out obvious lemons.

Gravitas

The first and the largest, BTCjam’s $7.3M financing makes it the most well capitalized bitcoin lending platform in the market. Their team of 20 staff sits in San Francisco offices, led by CEO and founder Celso Pitta and advised by Bitcoin Foundation Executive Director Patrick Murck.

BTCjam Borrowers

Account Verification

Setting up a borrower’s account requires going through a rather detailed vetting process. Standard identification is obviously required, but btcjam also examines a user’s web history – with social outlets and online payment services for instance – to determine any existing reputational footprint.

According to BTCjam, the verification information is visually examined by a minimum of three different employees and fed through a prediction algorithm meant to predict default likelihood.
Depending on how much of the above is completed, the contents within, site loan history and current borrowing status (i.e. currently paying out a loan), prospective borrowers are granted a credit score which determines interest rate and the amount that can be borrowed.

Credit Rating and loan structure

Every loan within a particular credit card score category receives the same interest rate automatically, which is based on the length of the loan.

This method is not without its critics. BTCjam essentially throws all the borrowers out there into the market and allows lenders to decide whether or not to fund them at the particular risk levels. This has led to a much higher default rate than at other platforms. Many have suggested that the particular fee scheme, in which BTCJam collects at the moment the loan is granted rather than gradually as the loan gets paid back, naturally encourages the above model, and incentivizes a less stringent attitude towards potential defaulters.

Furthermore, the rates granted to those with lower credit scores – who also happen to be those least likely to be able to afford high interest rates – almost guarantees their failure. Unlike other platforms which allow a bidding system facilitating lower interest rates, Jam’s credit score has a fixed rate. While we understand the reasoning behind this – setting a loan return which compensates for much higher risk profiles – we believe the actual effect is to increase default rates.

Loan denominations

Pay special attention to the the type of loan – bitcoin or linked – selected. A bitcoin loan will require loan payback of the same amount of bitcoin plus interest, regardless of market movement. This means that, in the event a borrower exchanges bitcoin into a local currency that proceeds to fall against the price of bitcoin, the original bitcoin amount will still be owed. The second type of loan – linked – locks in the rate of bitcoin against the currency at the time of borrowing. If, for example, 10 bitcoin are borrowed at $250 each, the borrower will owe $2,500 upon loan maturation, plus the interest rate, regardless of bitcoin price movements in the interim. For those borrowing to finance non-bitcoin related activities, it is highly recommended to use a linked loan. Currently btcjam offers the widest variety of linked loans, including dollars, euro, rupee, real, peso and rubles.

BTCJam Investors

BTCJam arguably has the best interface of any of the bitcoin lending platforms for investors. After initial login, users will be directed to their personal dashboard, which will have different displays depending on whether the account is set to borrower or lender.

Investors are able to switch the dashboard view from the settings tab, after which an “invest” icon will appear in the upper-right-hand corner, which opens a listing of loans available for investment.

Loans can be filtered to include only particular credit scores or time frames, as well as the type of loan desired – meaning, whether the loan is pegged to a particular currency.

Each particular loan displayed includes a summary of information including, among other things, a description and expected yield. Clicking on the loan opens up a more detailed display.

The detailed display should be carefully examined prior to investing. There are a number of indicators as to whether a borrower will be able to pay back a loan – credit rating, previous history and borrower reputation being the most obvious. Check out the feedback as well, accessible from the borrower’s profile, for clues as to trustworthiness.

Class C and D loans are often characterized by ridiculously high yields, which usually means that even the most well-intentioned of borrowers will default. Pay attention to small details as well, which can often indicate whether a user is out fishing for donations. Lack of actual photo and incomplete loan descriptions are rather obvious, but look for subtle indicators that the user is building reputation with a view towards running – the most notable red flag being a borrowing pattern in which a number of relatively small loans are paid back without incident, and then there is a sudden jump to a higher loan request. We highly recommend not to invest in a borrower requesting an amount that is significantly higher than previous borrowed amounts. And unfortunately, sometimes you just can’t tell. Everything can feel right and the user can still be a scammer. Which is why it is important to diversify.

Autoinvest

The autoinvest feature allows the creation of an allocation plan according to risk tolerance. Users pick between conservative, moderate and aggressive plans – so termed based on the percentage of funds allocated to each particular credit score class – and then indicate the amount to invest in the plan. After confirming, a small portion of the investment will be allocated to a large number of investments fitting the description. Users can customize the number of investments to be included from between 80-150, as well as the loan terms and whether to reinvest earnings.

After investments have been made, the payment schedule is listed in a convenient calendar, accessible from the “payments” tab, with each loan color coded to indicate whether it has been paid, is pending, or overdue.

Debt collection

btcjam offers free arbitration services through net-arb. In practice, this means loaners will receive the personal details of defaulting borrowers, but the information is pretty much useless without collateral. Don’t expect much help from btcjam either (and they are not alone amongst lending platforms in their impotence), they are very limited in what they can do. Default needs to be considered an implicit aspect of the lending investment, mitigated only through wise selection of borrowers and/or diversification of loans amongst many different borrowers.Support

Support is limited to email, and users may post publicly their questions. Support has a poor reputation, and it seems well deserved. A lap around the internet will find tons of stories of emails gone unanswered for weeks, important threads started by C-level executives will abruptly halt mid-conversation, and the public posting of questions are usually neglected. This is, frankly, entirely unacceptable conduct for a company entrusted with securing, and entirely dependent on, the hard earned cash of their customers.

Bottom Line

BTCjam has a massive list of borrowers and lenders, and their is definitely wheat to be found amongst the chaff. Although scammers are part and parcel of this business, BTCjam does not do a particularly good job in filtering them out, and so it is incumbent on lenders to both diversify loans and investigate closely each particular borrower.

Peer to peer lending is an incredibly interesting and beneficial new market, and bitcoin lending has the potential to play an important role there. BTCjam is at the forefront of this niche, and it will be truly exciting to see how the business plays out over the coming months and, hopefully, years to come.