Bitcoin-backed fiat loans are a rip-off

[bitcoin_user]

Yes, it looks very good on paper: Keep your bitcoin and get fiat to buy a house for example. But...

- You lose complete ownership on your BTC. What prevents some companies with funny names ("YouHodler" - seriously! - ) and created only 2 years ago to escape with your BTC?
- the LTV (the amount of BTC you need to put as collateral) is usually 100% of the loan!
- AND you pay also interest rate on that: So the lender gets your bitcoins (that he can borrow to others) + the interest rate that you gave him!
- Not to mention that if the price of Bitcoin decreases, you have to increase the amount of BTC put as collateral.
Imagine taking a loan and each month the lender asks you for your month salary and alters your loan if he detected that your salary has decreased (even if you pay the interest rate correctly)!

Bitcoin-backed loans are really insane and they make no sense at all!
I guess that's because there is not enough competition on this market for the moment but I don't understand how someone with a sane mind can purchase this for a start.

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[Wiwo]

Honestly speaking this is the first time am hearing of a Bitcoin backed loan, for goodness sake how can you put your Bitcoin down as collateral to take up a fiat loan the worst part is that the loan comes with all these conditions that make it a total turn off to any one who knows about Bitcoin and its volatility.

[Welsh]

The only interest that ever makes sense to say it's a good thing, is the amount you'll collect if you're a long term holder of Bitcoin. Loans never really make sense if you can avoid them. It's basically signing up to lose money, so that you can have something sooner. If I offered you a pizza today, but you'd have to overpay 2x the amount of what it's worth, instead of waiting to have it in a week, you'd probably not go for it.

Although, this is also the first time I'm hearing of a Bitcoin backed loan, that's given in fiat. Sounds like a scam to me, doesn't really make much sense for the borrower or the lender considering the high volatility of Bitcoin, which I'd assume is written in the contract, that's if it isn't just an outright scam.

The only exceptions are houses, and while it's technically still a loan, not many people can get houses without one, and much of the time they're needed to be able to work in certain places etc. However, I wouldn't be using my Bitcoin for securing a loan. To be honest, I'm highly sceptical of the companies that are offering this, wouldn't consider them trustworthy at all.

[NotATether]

Quite frankly I don't believe the global userbase is ready for crypto-backed loans yet, so for now, action must be taken to discourage their use (there is literally no usefulness for these services without price stability).

In particular, governments should introduce bills to require not just Level-3 KYC info from prospective loanees (basically documents that prove the source of your bitcoins), but it should require things like SSN and other things that credit rating checkers need.

The objective is not to put the loan process through some sort of credit rading process (for it's the *lender* whose credibility is unknown), it is merely to drive away as many prospective customers from this industry until this area is more thuroughly regulated, like crypto exchanges for example.

[stompix]

Although, this is also the first time I'm hearing of a Bitcoin backed loan, that's given in fiat. Sounds like a scam to me, doesn't really make much sense for the borrower or the lender considering the high volatility of Bitcoin, which I'd assume is written in the contract, that's if it isn't just an outright scam.

They've been around for ages (in bitcoin time) , I think Celsius was launched in 2017 for example.
It works nicely for short-time intervals with small sums when basically you're not risking much as you can overcollateralize it easily, and it might not be fiat but for example, Darkstar_  offers USDT loans.

Speaking of larger sums, like mortgages we've just had a thread about it, and I've already pointed out the flaws and risks in it and also the pro, not going to dive in this again but when you play with large sums and little reserves it sounds to too dangerous for me.

In particular, governments should introduce bills to require not just Level-3 KYC info from prospective loanees (basically documents that prove the source of your bitcoins), but it should require things like SSN and other things that credit rating checkers need.

Hmmmm, no!     
Let's not open Pandora's box once again, we should have learned the last 100 times nothing good comes out of it.

[Charles-Tim]

The only interest that ever makes sense to say it's a good thing, is the amount you'll collect if you're a long term holder of Bitcoin. Loans never really make sense if you can avoid them. It's basically signing up to lose money, so that you can have something sooner. If I offered you a pizza today, but you'd have to overpay 2x the amount of what it's worth, instead of waiting to have it in a week, you'd probably not go for it.

I too do not like the idea of loan, but I remember I first saw what is called 'buy borrow die strategy' on BBC few months ago, I couldn't get the link right away but here is another:

https://clacified.com/business/16/financial-hack-the-buy-borrow-and-die-strategy

The three is said to be commonly used by very rich Americans. The borrow aspect of it, if compared to bitcoin, a rich man can presume when there is some corrections in the price of bitcoin, he can be able to use some of his bitcoin holding as collateral and expecting the increase in bitcoin price over 2 or 3 years.

According to what I have learnt, the tax paid for spending bitcoin holding by the American rich people is much more higher if compared to borrowing, and additionally, fiat do depreciates in value because the government makes it centrally controlled and inflationary.

The rich people will have experts to let them know if it is a good idea to use asset as collateral (bitcoin is an asset) and if it is the right time to use it. But just not making a correct long term analyses for it and just borrow will be a stupid idea.

[buwaytress]

Definitely don't think the risk to benefit is ever worth it for Bitcoin or any other crypto, for that matter, (except that because Bitcoin is the only standard for something of value, arguably, Ethereum as well but I won't go there).

I will, however, say that I do see the point of taking a loan against collateral. House, car, jewellery, Bitcoin -- if you do need money, and you don't want to sell what you have, and don't mind paying interest (which is well, the only way you'll ever get a loan), then I can understand the value of such an option.

Only with Bitcoin, the risk of that collateral just disappearing is too great. To lose access, and bank on the promise of the loanee that they'll return it to you when you've paid back in full? Too big of a risk.

At least with a bank, putting up your house/car/property has state guarantees (not that I trust the state but 100% I have more confidence in some states than I'll ever have in some Blockfi or whatever).

[aoluain]

Hasnt Michael Saylor been mentioning "Bitcoin backed loans" in some of his interviews?

From his view if anyone holding Bitcoin at some point needs funds for anything, lets say
house repairs and needs to liquidate an asset and chooses Bitcoin, he maintains you
shouldnt sell or liquidate the Bitcoin but instead take a loan backed by Bitcoin.

Now MS wouldnt be using

YouHodler

he would be using a well established, giant banking institution offering that service.

The only thing is by doing so you are going against everything Bitcoin was designed
for. Trusting someone else with your property.

[Welsh]

Interesting, I seriously wasn't aware of how wide spread the Bitcoin to fiat loans market was. Not that I'm interested in it, but my first thoughts was that doesn't sound right. I'm wondering when government regulation comes in too, since I know they'll want to have KYC for this, since there's money laundering issues.

I know there's been lending peer to peer for several years, and there's been platforms allowing users to provide loans, but never knew there were so many companies offering it. Especially, without proof of funds, that's kind of surprising to me. To secure any fiat loan, you need to provide at least your income, and usually where you got your deposit from if it's a mortgage.

[teosanru]

Yes, it looks very good on paper: Keep your bitcoin and get fiat to buy a house for example. But...

- You lose complete ownership on your BTC. What prevents some companies with funny names ("YouHodler" - seriously! - ) and created only 2 years ago to escape with your BTC?
- the LTV (the amount of BTC you need to put as collateral) is usually 100% of the loan!
- AND you pay also interest rate on that: So the lender gets your bitcoins (that he can borrow to others) + the interest rate that you gave him!
- Not to mention that if the price of Bitcoin decreases, you have to increase the amount of BTC put as collateral.
Imagine taking a loan and each month the lender asks you for your month salary and alters your loan if he detected that your salary has decreased (even if you pay the interest rate correctly)!

Bitcoin-backed loans are really insane and they make no sense at all!
I guess that's because there is not enough competition on this market for the moment but I don't understand how someone with a sane mind can purchase this for a start.

This really is a bad deal, not only because Bitcoin's price can be volatile but also because you as a consumer is losing at everything in this. The only favourable condition for you is if the price of bitcoin increases and you are able to clear off the loan with just some part of your total holding of bitcoin other than that all the situations are really losing for a borrower, you are right these loans really a rip off.

[bitcoin_user]

we've just had a thread about it, and I've already pointed out

I didn't see this thread, thanks. Better to continue on that other thread then.