The $5 billion cryptocurrency-loan bubble is on the brink of popping, according to a group of former Wall Street traders.

The industry emerged in 2018 at the height of the cryptocurrency bull market when investors wanted to leverage their digital assets to obtain credit.

But despite the industry’s significant growth in the past two years, warning signs have started to emerge with companies lending dangerously without regulated lending standards.

“What keeps me up at night is not adoption, or even regulatory uncertainty: it’s credit risk,” said Jason Urban, a former trader at DRW Holdings LLC and Goldman Sachs Group.

“The torpedo below the waterline is an MF Global-Lehman Brothers type event.”

Crypto lending companies like BlockFi, Salt, and Nexo have all demonstrated substantial growth since launching, but the beaming optimism shouldn’t turn into blind arrogance.

A collapse of a $5 billion industry wouldn’t be as devastating as the financial crash in 2008, but it would serve as a reminder to emerging industries not to be too greedy.

BlockFi CEO Zac Prince revealed that the company has never experienced a late payment or loss, but Matthieu Jobbe Duval, who works for CoinList, remains cautious.

He said: “Crypto is still a small market relative to traditional asset classes. However, the feeling of deja-vu is there: lack of regulation, cheap credit available with minimal due-diligence, and broad optimism.”

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Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.