South Korea first bank-backed Bitcoin loan

[d5000]

What is the point of taking out a loan and using my Bitcoin as collateral when I can simply sell a small portion if I urgently need money? If Bitcoin is the only asset I have available, I would rather sell just enough to take care of my needs and buy back later when I'm financially stable again.

The point is that your Bitcoin can continue to appreciate while the loan runs. And the fact that the long term trend still appreciates, can make this an attractive option if you design the contract in a way where you wouldn't be forced to liquidate in the case of a dip. This would mean to overcollateralize it a lot.

If I understand it correctly the "deal" basically boils down to: it is a profit for you if your Bitcoins appreciate more in the time period than the interest rate you would have had to pay in the same time period.

It doesn't even have to appreciate exactly in that time period. For example: Bitcoin is at 80,000 and your loan's deadline is 2 years, and in these 2 years Bitcoin declines to 70,000 just because you catched a bear cycle - only then to appreciate again and go to 100,000. In this case you still have profited.

This also means that the kind of contract is most attractive as long as Bitcoin appreciates more than a common interest rate. It is still interesting if the expected Bitcoin appreciation allows you to significantly lower the "effective" interest rate (e.g. if you need the liquidity to start a business). But of course the contract is quite risky.

I also have some problems with that kind of contract because you give up self-custody, but people who already are storing their Bitcoins at exchanges and ignore NYKNYC should have no problem with such a contract.

[Munshi Prem Chand]

...

Additionally, in most jurisdictions, selling your BTC would be a taxable event (capital gains). By comparison, taking out a loan would not be a disposal event.
Even in case that BTC remained flat or did not appreciably change during the duration of the loan, you may still prefer to take out a loan vs. sell in order to avoid a taxable event. This argument is independent of argument above about appreciation, but they lead to the same result. And of course tax implications argument would be even more significant for larger positions and greater holding periods, which are situations where the tax bill would likely be significant.

[TastyChillySauce00]

Also keep in mind that while its being described as this fast track its still court ordered legal process for debt collection, not an internal trigger like with the old platforms that resulted in a nearly immediate liquidation.

You probably also expect a bank to ask for smaller loan to value given they are bit more conservative.

Though on other hand if they liquidated your BTC and were still out of pocket they could come after you for it through normal judicial means instead of just writing it off as bad debt.

I think the legal recourse is the most important thing, i'd be mad if there is a flash dip which causes the bank to liquidate my bitcoin and my other assets are also seized only for bitcoin to recover back again soon. Lending platform use OSM with 1 hour delay to mitigate flash crash and TWAP for averaged price oracle.

It would be important to know how fast from flash dip to court ordered legal process for debt collection before liqudiation takes place in comparison to decentralized lending platform.

[Peanutswar]

But if that's the case is the user must need to deposit their bitcoins into the bank cryptocurrency wallet as part of the collateral there is a lock in period after the maturity date of the loan. For me its good initiate for people who have bitcoin and wanted to loan a bank like they have the capability but i can see here is the cons, why? because you took a loan, and they take your bitcoin sad here is there is a lock in period, if the market crashes its lower the value of your bitcoin and you can't do anything about it. You can't sell; you can't cut loss. I dont trust banks into crypto nowadays _{(or because just had a bad experience)}

[Botnake]

This is surely a move to encourage Bitcoin adoption in South Korea. It's even more interesting to learn that borrowers maybe able to access loan without selling their Bitcoin, long-term holders who need cash but doesn't want to give up their position will find that very useful. That said, the risky part is that, depending on the bank's term, if Bitcoin's price falls significantly, the collateral might no longer be enough to cover the loan. They should show us the loan-to-value ratio as well as the conditions that talk about the fate of a borrower when the market turns against them.

If that's the case, then the bank will require additional deposit of bitcoin to meet the required value, or add another form of collateral that is acceptable by the bank. With this, I find it more hassle on my part because the moment you fail to pay your loan, you won't only lose your bitcoin alone but also your other collateral and that makes it very worrying. Though its actually helpful for those who are in urgent need of cash, but its undeniably risky too. Some may grab the offer desperately, but personally, I prefer to find other options that would not compromise my bitcoin.

[HajiBagi]

If we look carefully at what is stated in the articles, at first reading you will think that it is a good step that the bank backed bitcoin so that anyone who wants to borrow from them can borrow. Where we will look carefully at the market target of the bank is the bitcoin holders and believers in it.

Literally speaking, it is a good news, due to it adds a boost to the adoption of Bitcoin, but if I were the only one who was asked, I would prefer the usual way of using other collateral, not bitcoin. Due to it seems like it is difficult if you miss a payment because you will still go to court if I understand what I read in that news article correctly, this is just my opinion.

It will be good idea if it is usual other collateral that is not bitcoin, it is a good news for bank to be able to offer loans but when it comes to something that related to bitcoin and loan i don’t joke with it, i can take a loan from a bank that doesn’t involve btc, pay back with btc or using my btc as a collateral, although this is another way of encouraging bitcoin adoption, but when you look at the way many banks operate, you will not want to take any loan from them.

Some banks rules are very strict and when you don’t pay your loan in time they will act the way you don’t expect them, and with the court involved according to the post, it will be very risky, most especially for people that can’t pay in time, seeing bitcoin going to this level is a big improvement but whe it comes to loan, i always think it’s a risk move.

[Y3shot]

If this bank is also performing P2P exchange for Bitcoiners, then it is a good one. However, if they are not and are only demanding Bitcoin investments as collateral, then it means they are just interested in selling customers Bitcoin who won't be able to meet the loan that was taken. The bank has always been giving out loans with other forms of collateral, and I wonder why they are demanding Bitcoin right now.

If the bank wants to engage in anything related to Bitcoin, they need to fully accept Bitcoin, and with this, I think they have the right to demand people's investments as collateral for loans.