Question about BTC loans

[jubalix]

If a loan is made in BTC, and the investment to give the return is not in mining (and that has its risks), eg the investment is a fiat investment, so can only have a fiat return, does this not ensure a a sizeable default on all loans if BTC goes through an order of magnitude increase (10x) over a short period.

Eg, Say bob takes out a loan for 1BTC for 4 months, converts to cash, and does X it makes 200% return, however during the 4 months to repay, BTC has gone up 10x, how will bob repay?

Ok bob may be able to repay, but a lot of the "bobs" out there will not be able to.

So at some point during an BTC evaluation event,  I would expect to see a lot of defaults.

I also have not seen any trading scheme that has delivered the increase of BTC over the few years it has been around, so it seems to rule that out as well.

Any how I am interested in you views, and why I may be wrong.

[1715389755]

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[1715389755]

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[1715389755]

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[Eisenhower34]

Yes. with a BTC denominated loan you have to deal with price fluctuations. To counter that you can either take a usd denominated loan or buy an call option...

[jubalix]

Yes. with a BTC denominated loan you have to deal with price fluctuations. To counter that you can either take a usd denominated loan or buy an call option...

ok so a BTC loan would  have a better security if they backed by escrowed call options.

Is this a function of any loan facility in BTC here?

I realize this would make the return less but I for one would feel much more secure lending money to a lending institution if they had call options against all bitcoins lent. This would almost guarantee I would at least get my bit-coins back.

<brain thinks a bit more>
I suspect thought the person offering the call option would charge a lot for it, in fact it just seems to push the same problem back to that person issuing the call option, so maybe a call option is not really a solution

[🏰 TradeFortress 🏰]

We have put options on the assets we have as collateral.

[jubalix]

We have put options on the assets we have as collateral.

ok by assets do you mean

people offer assets and you have option on them

or

once you have a right to asset from a debtor as collateral against the loan you get a put option to the value of that asset at that time in BTC

or something else? sorry if I am not understanding this right.

[🏰 TradeFortress 🏰]

once you have a right to asset from a debtor as collateral against the loan you get a put option to the value of that asset at that time in BTC

But not exactly to the value of the asset at that time.

[jubalix]

once you have a right to asset from a debtor as collateral against the loan you get a put option to the value of that asset at that time in BTC

But not exactly to the value of the asset at that time.

Ok that's really good then, that means you can almost guarantee your operation to 100% of underlying capital as long as the put options can be exercised.

The amount of work you must be doing behind the scenes to do all of this must be a lot!

[Eisenhower34]

I realize this would make the return less but I for one would feel much more secure lending money to a lending institution if they had call options against all bitcoins lent. This would almost guarantee I would at least get my bit-coins back.

<brain thinks a bit more>
I suspect thought the person offering the call option would charge a lot for it, in fact it just seems to push the same problem back to that person issuing the call option, so maybe a call option is not really a solution

A "lending institution" shouldnt give out USD denominated loans financed with your deposited BTC without call options and yes the person who issued the call option has a problem when the price rises too much and he didnt back his the sold call option with BTC.