Banks Are Starting to Accept Bitcoin as Collateral. Is This a Good Thing?

[Antidote47k]

It’s a nice development, we were bound to reach this point with time, the main thing that should be considered whether as an individual or a company before deciding to use your BTC as collateral is to have a financing that has a sustainable repayment source and terms that can withstand a major price decline.
The main difference between a good loan and bad loan is sustainability, what makes a loan sustainable?? A good repayment Cashflow and ability to withstand a downturn, unfortunately companies are more likely to be able to fulfill these conditions than individuals that why I wouldn’t recommend individuals to per take in this type of loan, for them, the risk to reward ratio is not worth it.

A business can take the loan and use it to fund an investment which can generate operational Cashflow whereas an individual borrowing to cover everyday expenses may not have a comparable income generating asset or a repayment plan

[snowpega]

Taking a loan using bitcoin as collateral is, I think, a good option. Why I am saying this is because until the person who is going to take a loan using Bitcoin as collateral, that amount of bitcoin will stay remain as it is until that perosn pay back its loan to the bank from which they took loan. Meaning that the amount of Bitcoin will also be locked for a good period of time until the person pays back its taken loan.

Now, I don't know if banks have the authority to sell those bitcoins to invest them further.
Saying this because it is obvious that whatever amount of bitcoin one hands over to the bank to take a loan will get back the same amount of bitcoin once they pay back their loan. CMIIW! What do you guys think about it?

[GeorgeJohn]

Bitcoin adoption isn't just about buying and holding anymore. Some financial institutions are exploring ways to let businesses borrow against their BTC instead of selling it.

You should know that that if you regard bitcoin based on you have known the important, is as similar as someone that adopted bitcoin...buying and holding bitcoin for long-term is also adoption of Bitcoin, because you can't hold something you have not adopted for long-term...The most of the reasons financial institutions borrow instead of selling their Bitcoin, it's because, they wants to retain the potentiality of their bitcoin, incase of future selling...

[Big Dirams]

When they don't know which other means to use and take custody of your holdings, they provide an option that will make you bring it to them. 

For individuals, I don't consider Bitcoin collateral loans as something that you should consider, rather than sell your bitcoin, solve your issue and restock when necessary. 

For companies, it's something that could be considered, after all, it's investors' money, and they can always strike a favorable deal with the bank more than what will be offered to individuals.

Based on the news reports about this, I see it as a positive step, and I don’t think this is just another way to seize control of the Bitcoin held by people who have pledged it as collateral for loans.
There has already been a growing number of people who welcome this positively because they believe that, rather than being forced to sell their Bitcoin, its value will likely increase in the future. With this concept in place, they can get their Bitcoin back and pay off everything they’ve borrowed from the bank.
I think this positive perspective isn’t just beneficial for the company—it’s also good for individuals.

Bitcoin has a collateral is a good idea though but I don’t think all banks will take part in this because at some point it is risky for the banks. Like this has advantages and disadvantages, what I mean by the advantages is that if the loaner isn’t able to pay up their loan and they held his bitcoin has collateral then if bitcoin prices rises then it a huge gain for the banks and they could make 2 times of the loan that was taken. And about the disadvantages is that when bitcoin price go for dips which of course it would then the banks might end up loss especially when they are not willing to hold for long term to see maybe the bitcoin might recover.
Some banks might accept this but some banks wouldn’t, maybe some private banks would love this idea of bitcoin as collateral.

[Z-tight]

It is a great opportunity for Bitcoin both digital market and overall the whole economy in the world.

Talk about an exaggeration, lol. If you read the news, you'd see this offer isn't even available to retail customers, but to only corporate entities, that's big businesses in their region.

Bank can used new investment in market.

The bank isn't holding the BTC collateral deposit. They are handing it over to a third party custodial service and it is these services that would likely liquidate these deposits and invest them to make money for themselves.

People also can more confidence with Bitcoin. Accept Bitcoin as Collateral in banking sector Bitcoin can play a strong role in international economy.  Create many new financial investor and economical zone after good accepting Bitcoin as a collateral.

None of this is going to happen as a result of this story you've just read my friend.

[Rruchi man]

For me, the real question is whether Bitcoin-backed lending can grow sustainably without encouraging excessive leverage.

Do you think this is a good step for Bitcoin adoption, or could it create bigger problems ...

This shows institutional acceptance is happening, and it can only be more from here.

One problem it could encourage is more bitcoin holders could be encouraged to use the bitcoin they have as collateral when they are in need of emergency funds for use. Some may actually prefer to borrow against the bitcoin they have instead of selling off the bitcoin for cash directly.

Investors should continue to plan for emergencies as they plan their investment so they are not in the position where they start considering using their investment as collateral for a loan.

[Silverstonez]

Do you think this is a good step for Bitcoin adoption, or could it create bigger problems during the next major market downturn?

We have been discussing this in the trading section, borrowing against your bitcoin doesn’t seem like a bad idea in theory, but it could become a problem during the next market downturn, because if bitcoin crash borrowers may be forced to sell their bitcoin’s to repay their loans. As for the adoption part, I doubt if this will significantly drive bitcoin adoption, remember people are using bitcoin as a collateral for debt rather than as a currency or a long term store of value.

[BABY SHOES]

Do you think this is a good step for Bitcoin adoption, or could it create bigger problems during the next major market downturn?

More adoption of bitcoin means more progress of bitcoin. There will certainly be downturn, but what that is very important is the progress to surpass the downturn in a way bitcoin will be a store of value. There is no way that bitcoin used more as collateral (or as more institutions are supporting it as collateral) will affect bitcoin adoption.

Bitcoin's progress is already high, some institutions have been holding a lot of bitcoin for future plans and they know it's a great store of value... banks also accept guarantees bitcoin knows its prospects, not just thinking about the risk but the risk of decline will not touch 80%, meaning bitcoin is still very useful in any circumstances, we think even though its value fell during the bearish season it can recover again, that's what banks and other institutions might think.

[Mia Chloe]

~snip

It's high time saw the fact that banks are not suddenly trooping into bitcoin because they love bitcoin suddenly they make most of their moves calculated to stay safe. Banks are an indirect accomplice of the government and the government don't like bitcoin but keep involving regardless because they see the potential.

Anyways using bitcoin as an asset sounds interesting but I'm kinda curious how they are gonna handle volatility and price fluctuations in this case.

[Josefjix]

A strong Bitcoin investors always get afraid of loosing his Bitcoin no matter the value, because he knows everything value counts. Many times, I get pissed off in the ass because i see my Bitcoin for Fiat every week when I'm supposed to earn Fiat for upkeep and Bitcoin for holding.

These banks really wants to sell this idea and I'm sure these strong Bitcoin investors will never regret participating in it so long as their Bitcoin are kept intact no matter what.

If you ever value Bitcoin, then you gonna treat it like an egg, those who value every Sats are down to doing this business, no matter what it takes them not to sell off.

[Sanitough]

For individuals, I don't consider Bitcoin collateral loans as something that you should consider, rather than sell your bitcoin, solve your issue and restock when necessary. 

That's it. Bitcoin itself is already complex because of its high volatility and market uncertainty, do not add more pressures by having it as a loan collateral. In the long run, not only your bitcoin will be compromised but even your other assets accumulated, and that will never give you peace of mind.

Sell instead. Sell a portion of your bitcoin and fill in your portfolio when the market is in sale again. With how easy it is, stress and risk will be avoided too.

[GeorgeJohn]

<..>?

We have been discussing this in the trading section, borrowing against your bitcoin doesn’t seem like a bad idea in theory, but it could become a problem during the next market downturn, because if bitcoin crash borrowers may be forced to sell their bitcoin’s to repay their loans.

If an investor found potential in bitcoin, it will not like to lose the bitcoin because of his current challenges facing him, they're people who is determined to keep whatever they have in their possessions, mostly people who knows the values of bitcoin may not likely  sell their Bitcoin without accomplishing their target...When you know futures values of bitcoin, you will decide to borrow against your Bitcoin because of future...bitcoin price is not stagnant, it always fluctuates, so nobody can predict exactly the next step the price can ascertain, that's one of the reasons future investors prefer to borrow against their bitcoin, instead of selling it off...

A good investor can't sell the bitcoin it's holding under a panic, it's the newbies in bitcoin investment can because of price crash and sell their Bitcoin out of panic...

As for the adoption part, I doubt if this will significantly drive bitcoin adoption, remember people are using bitcoin as a collateral for debt rather than as a currency or a long term store of value.

For the aspects of adoption of Bitcoin...you turned the question of op upside....it maybe that, it's the way you understood the phrase of op...nobody is using Bitcoin as collateral for debt, it’s your assumption, and it's what you're exaggerating, do not generalise it to everyone..

[Nwada001]

We have been discussing this in the trading section, borrowing against your bitcoin doesn’t seem like a bad idea in theory, but it could become a problem during the next market downturn, because if bitcoin crash borrowers may be forced to sell their bitcoin’s to repay their loans. As for the adoption part, I doubt if this will significantly drive bitcoin adoption, remember people are using bitcoin as a collateral for debt rather than as a currency or a long term store of value.

The danger/safety of borrowing with your bitcoin is based on the legal agreement. That's how much danger the borrower can face during bear season. Imagine a lending agreement that signs if the value of the asset is reduced based on market action down to below 40% of the collateral, which will be claimed by the lender. Something of that nature, a lot of people who borrowed against their bitcoin will lose their bitcoin in some unpredicted market reaction.

[lombok]

For individuals, I don't consider Bitcoin collateral loans as something that you should consider, rather than sell your bitcoin, solve your issue and restock when necessary. 

That's it. Bitcoin itself is already complex because of its high volatility and market uncertainty, do not add more pressures by having it as a loan collateral. In the long run, not only your bitcoin will be compromised but even your other assets accumulated, and that will never give you peace of mind.

Sell instead. Sell a portion of your bitcoin and fill in your portfolio when the market is in sale again. With how easy it is, stress and risk will be avoided too.

Utilization of highly volatile cryptocurrency assets in terms of loan collateral will definitely cause undue psychological pressure. Volatility in the charts will cause immediate forced closure without any prior notice. The action of selling off some coins to cater for immediate needs seems to much better option to have peace of mind.

Cutting down on the number of cryptocurrencies will relieve you of the enormous financial pressure. Repurchasing of coins will only be done slowly after everything goes back to normal. Avoiding the use of such risk debts that are backed by assets will relieve you of the fear of losing everything in the future.

[Japinat]

Do you think this is a good step for Bitcoin adoption, or could it create bigger problems during the next major market downturn?

More adoption of bitcoin means more progress of bitcoin. There will certainly be downturn, but what that is very important is the progress to surpass the downturn in a way bitcoin will be a store of value. There is no way that bitcoin used more as collateral (or as more institutions are supporting it as collateral) will affect bitcoin adoption.

Seeing banks embracing bitcoin system is a good proof of bitcoin adoption. This tells us that they are already seeing the potentials of bitcoin.

Market downturn is nothing new, it's no longer a threat for us. But I don't think banks will be able to manage this the easier way, and this could be another challenge for them. That's why they have their own terms and conditions prior to accepting bitcoin as a collateral. Its up for the people if they will take advantage with the offer, or ignore it and stick to taking a loan the traditional way.

[X-ray]

It's growing recognition and banks already have a framework to work with Bitcoin collateral which means, they're confident that Bitcoin is liquid enough to be a collateral despite the volatility risk but honestly volatility risk was never a problem, equity is volatile and they accepted it.

Maybe the only thing to see here is how much the typical equity haircut by the banks for Bitcoin colalteral, equity have ~15% for main index equity and usually ~25% for individual stocks can be more, but Bitcoin's collateral equity haircut is still 30-50%, which means they're confident enough to accept it but still not as confident as other collateral and being very conservative on risk management.

As it happens, Bitcoin falls under high-risk tier (Group 2) from Basel Framework which explains why more banks accepting Bitcoin as a collateral yet still giving conservative equity haircut.

[traderethereum]

Although that is a positive development, personally I don't want borrowing money risking Bitcoin. I can't accept the risk if I can't pay back the debt because I will lost my Bitcoin. If that is success in South Korea, maybe other countries would apply and see the progress.

Probably people will see this is a good chance for them to get more money so they would agree with the agreement. We will see how the progress of this program and how good the adoption will run.

But people must check all requirements before they apply, that will avoiding them from making the mistake.

[Yamifoud]

When you are in business, businessmen take every opportunity they see when there is demand. Since the crypto industry is growing quite fast, they take advantage of the situation.

Could this be a good thing? It is not just a good thing, but it also solves the problems of others, especially crypto holders/investors.

For me, this is not a surprising move by banks. Instead, they are dealing with the future. Just think about this… if they don't move today, others will. If that happens, they will lose not just opportunities but also experience.

[Charles-Tim]

When you are in business, businessmen take every opportunity they see when there is demand. Since the crypto industry is growing quite fast, they take advantage of the situation.

Yes, that is just it. But the banks have just seeing that bitcoin is an asset that will not lose its value which makes them see it fit as collateral.

Could this be a good thing? It is not just a good thing, but it also solves the problems of others, especially crypto holders/investors.

Can you explain better the reason it is not a good thing? Or is that a typo?

For me, this is not a surprising move by banks. Instead, they are dealing with the future. Just think about this… if they don't move today, others will. If that happens, they will lose not just opportunities but also experience.

Yes, but this is not just about the future only. It is very possible that many people that are borrowing money from the banks have started requesting for bitcoin to be used as collateral.

[#CapsLOck]

I believe the biggest problem is not only that Bitcoin is volatile, but also that at some point there will be many borrowers that will need to put up their collateral all in the same place. Borrowers might have to replenish their loans by purchasing additional shares or selling some assets if BTC falls drastically. If multiple institutions are doing it at the same time, they could push the market down even further. But the concept of lending backed by bitcoins isn't evil, it's just that LTV ratios and unambiguous liquidation procedures are important. Adoption is better when the financial system is prepared to deal with a downturn, as opposed to when it is a bull market.