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

[terrific]

For me, I think this is just another great milestone for Bitcoin, growing from just a speculative retail asset to something that have become a legitimate institutional collateral. And this can also prove to be a positive step too for long term adoption because Bitcoin would through this way gain more traction and presence in the country, so even if it is not adopted as legal tender, it is already playing a major and notable role in the financial sector.

I agree, this is a milestone that everyone should appreciate.
Although that this is an adoption that happens to these centralized systems and services which is the bank.
We have to appreciate it that they're looking at it as something more valuable than ever. I guess that they didn't expected it that it can be a collateral.
If more banks do this, then a bitcoin holder can now step into the branch and just look for the branch manager or whoever they want to take the loan with by using the cheap bitcoin they bought long time ago.

[Tungbulu]

I agree, this is a milestone that everyone should appreciate.
Although that this is an adoption that happens to these centralized systems and services which is the bank.
We have to appreciate it that they're looking at it as something more valuable than ever. I guess that they didn't expected it that it can be a collateral.
If more banks do this, then a bitcoin holder can now step into the branch and just look for the branch manager or whoever they want to take the loan with by using the cheap bitcoin they bought long time ago.

That’s right, but as long as the bank don’t attempt to centralize the whole collateral process. But I actually doubt if they’ll have the technology to keep everything in a decentralized system, whereby the user would still retain control of their Bitcoin but still somehow blocking them from withdrawing or spending the Bitcoin, just like the concept of staking.

[sokani]

I'm having this curiosity over the interest on this Bitcoin as collateral. Anyone that must have taken study how defi lending work or that have borrowed money knows what is at stake if you use Bitcoin as collateral. You are just going to walk inside the bank and give them Bitcoin as collateral. What about the price? Bitcoin is volatile, if anything goes wrong with the price, I don't think the bank are going to sit around and watch the price go beyond what was lend to you.

I don't think it's such a bad idea as it does not only give people access to loans but also the chance not to sell their Bitcoin at a loss.

If a financial need arises when the market is bad or bearish. Instead of selling at a loss, people can get a loan from the bank using their Bitcoin as collateral, and when the market is bullish, they can request the bank to sell their assets and take the loan amount as well as the interest and give them the balance.

[terrific]

I agree, this is a milestone that everyone should appreciate.
Although that this is an adoption that happens to these centralized systems and services which is the bank.
We have to appreciate it that they're looking at it as something more valuable than ever. I guess that they didn't expected it that it can be a collateral.
If more banks do this, then a bitcoin holder can now step into the branch and just look for the branch manager or whoever they want to take the loan with by using the cheap bitcoin they bought long time ago.

That’s right, but as long as the bank don’t attempt to centralize the whole collateral process. But I actually doubt if they’ll have the technology to keep everything in a decentralized system, whereby the user would still retain control of their Bitcoin but still somehow blocking them from withdrawing or spending the Bitcoin, just like the concept of staking.

I think that the fact that it goes through them is already considered as centralized.
So, the whole loaning process is within the usual process they do just as how we collateralize the other assets we have.
It's not going to be the same as the DeFi's and they will just go on with the process they used to have but this time, it's not with a tangible asset but with Bitcoin.
The mere difference might be going to the bank itself and showing yourself and that has already defeats decentralization if we're concerned about it.
Because we comply, they'll ask for ids, and other important details and at the same time they know now that we hold btc.

[Tungbulu]

I think that the fact that it goes through them is already considered as centralized.
So, the whole loaning process is within the usual process they do just as how we collateralize the other assets we have.
It's not going to be the same as the DeFi's and they will just go on with the process they used to have but this time, it's not with a tangible asset but with Bitcoin.
The mere difference might be going to the bank itself and showing yourself and that has already defeats decentralization if we're concerned about it.
Because we comply, they'll ask for ids, and other important details and at the same time they know now that we hold btc.

Then that’s a totally bad idea for me. No way I’m gonna give up my Bitcoin, my seed phrase or even my privacy to a centralized body simply because I wanna take a loan. If there are no physical or tangible assets that I can use for the collateral, then I might as well just forget about it and prolly sort for other means to  get the money/loan. I don’t know but I just don’t like the whole “surrendering your Bitcoin to a bank as collateral” idea, I mean it goes against everything Bitcoin stands for.
I change my stance on this topic.

[Asuspawer09]

For me this is good sure for sure because when banks starting to accept Bitcoin as a collateral that just means that they are now trusting Bitcoin as an asset, Bitcoin adoptation already come a long way back to 2016 if I remember it right cryptocurrencies are not even recognized by the banks, usually banks and cryptocurrencies is two separate things or usually on a discussion they are rival since crpto like what other said back in the day is going to kill the banking system. But now the banks are already adopted to Bitcoin and cryptocurrency plus it has already come to the point where Bitcoin can be used as collateral.

So when it comes to value it is getting recognition, most likely it is already getting similar to something like a gold asset or like a property, real estate, maybe like a house. I don't see anything wrong with it, it was just part of the process of adoptation if we are thinking long term into Bitcoin.

[Darker45]

~snip~

I couldn't really care less about people who doubt that BTC has value, i mean, this is 2026 and not 2009. It should be obvious to anyone who can use a smart phone and can do the tiniest bit of research, that BTC has value and they'd not need a bank providing BTC-backed loans to reinforce that for them.

Same here. I presume many especially the younger generation don't need the banks' affirmation for them to see the value in Bitcoin. But I also don't take any offense at the older generation's sort of befuddlement about how a complete nobody's strange invention became so valuable.

Perhaps it's where they're coming from. For these people, it's probably a big thing that the banks are offering loans with Bitcoin-backed collateral. For many of them, this might be the turning point. It might be a call for them to reconsider, to take a second look.

If they now embrace Bitcoin because of this, welcome. It's a good thing.

[OcTradism]

Same here. I presume many especially the younger generation don't need the banks' affirmation for them to see the value in Bitcoin. But I also don't take any offense at the older generation's sort of befuddlement about how a complete nobody's strange invention became so valuable.

Perhaps it's where they're coming from. For these people, it's probably a big thing that the banks are offering loans with Bitcoin-backed collateral. For many of them, this might be the turning point. It might be a call for them to reconsider, to take a second look.

If they now embrace Bitcoin because of this, welcome. It's a good thing.

People who struggle most to realize value of Bitcoin is the middle-aged and the elderly especially the elderly. With people who are young, they are most adaptive in any nation, and in any era of human civilization history. It's basically how the young are from their physical body, mentality then mindset. They are young, ambitious, energetic, adaptive, and have a lot of time to fix mistakes. They are ready to learn, pay costs, and learn again until they find something great.

Fortunately with Bitcoin, it's not like costing them anything because if they choose Bitcoin for investment, they only have to spend money to buy bitcoin, and store their coins safely even in free open source non custodial wallets. No further cost for buying anything to store bitcoins, if they don't consider hardware wallets.

There is no cost of loss by mistake because Bitcoin investment is good, it's not a mistake.

[Chibit01]

Borrowing against your bitcoins is only beneficial for those that are hodling for long term. I don't see how this is ideal for those who have short term expectations of their bitcoins, they can actually use a different asset as collateral or simply exercise a little patience and withdraw their bitcoins for what they want to do.

And if there is no other asset to be used as collateral, why not sell bitcoin to solve the issue and save yourself from the heavy interest that might be attached to it?

I love the idea of still keeping ownership of your bitcoins while still attending to your financial needs. I will not hesitate to use my bitcoins as collateral if i ever need a loan to solve a problem; but on the condition that the terms of the loan will be fair and that I will not be subjected to any form of KYC just to get the loan approved.

This equally means you will not be handing your bitcoin over to any bank, because there is no legal agreement that can be considered complete with the person's details being fully registered. Talk more about a situation which bank involves the headquarters for document verification, you will need to leave some proof of identification as part of the loan requirement.

[Bryan jessy]

For me this is good sure for sure because when banks starting to accept Bitcoin as a collateral that just means that they are now trusting Bitcoin as an asset, Bitcoin adoptation already come a long way back to 2016 if I remember it right cryptocurrencies are not even recognized by the banks, usually banks and cryptocurrencies is two separate things or usually on a discussion they are rival since crpto like what other said back in the day is going to kill the banking system. But now the banks are already adopted to Bitcoin and cryptocurrency plus it has already come to the point where Bitcoin can be used as collateral.

So when it comes to value it is getting recognition, most likely it is already getting similar to something like a gold asset or like a property, real estate, maybe like a house. I don't see anything wrong with it, it was just part of the process of adoptation if we are thinking long term into Bitcoin.

I believe organisations as Bank already knows the value of Bitcoin but since it has not been generally approved that is the reason it usage seems to be slacking, in the sense that they will love to use it not only as collateral means but for other transactional means, but it is a good development that Bitcoin at least got to this level it will go further and will one day be fully accepted for other means, because I am sure Banks will not hasn't to include Bitcoin in the long and other businesses but since the government has not given the access to the people in some places it's use becomes a little slow.

[free-bit.co.in]

That’s right, but as long as the bank don’t attempt to centralize the whole collateral process. But I actually doubt if they’ll have the technology to keep everything in a decentralized system, whereby the user would still retain control of their Bitcoin but still somehow blocking them from withdrawing or spending the Bitcoin, just like the concept of staking.

I do not think that's possible, man. You can't expect to borrow money from bank while still keeping full control over BTC you are putting up as collateral. No lender would agree to that, let alone bank. The bank has to make sure the collateral stays put until the loan is paid back. So if you want to use Bitcoin as collateral for bank loan. You have to accept that the bank will have temporary control over those BTC.  You can't have it both ways.

[Faisal2202]

MARA also has its mining and energy businesses to consider, so its risk is different from someone borrowing against personal BTC. For retail holders, I'd be more concerned about the loan terms and how much BTC they could lose if the price keeps dropping.

I also made the same argument that MARA has other businesses and infrastructure on which it can take loans and use that money to buy BTC or whatever they do. But its main focus has shifted to AI data centers because of the profits, and it is not selling its coins for its other ventures. Instead, it is taking loans against them.

Using BTC, they are playing a very good card here. Selling means losing big in the long term, so they are not letting go of any opportunity they have grasped. Real corporate move haha.

[bangjoe]

For me, I think this is just another great milestone for Bitcoin, growing from just a speculative retail asset to something that have become a legitimate institutional collateral. And this can also prove to be a positive step too for long term adoption because Bitcoin would through this way gain more traction and presence in the country, so even if it is not adopted as legal tender, it is already playing a major and notable role in the financial sector.

In the end, what is valued by the greater community will always have value, just like gold, so many people believe in its value so that generations become an entity of undeniable value around the world are therefore recognized, so bitcoin is slowly starting to be embedded in the modern human brain that bitcoin has a valuable value, the more people believe it will make its value better, and this is a value of trust from many people.

Everything that is considered valuable by the community will have a very important value and can be guaranteed, as bitcoin adoption continues to spread to various financial sectors.

[Tungbulu]

I do not think that's possible, man. You can't expect to borrow money from bank while still keeping full control over BTC you are putting up as collateral. No lender would agree to that, let alone bank. The bank has to make sure the collateral stays put until the loan is paid back. So if you want to use Bitcoin as collateral for bank loan. You have to accept that the bank will have temporary control over those BTC.  You can't have it both ways.

It’s just that banks won’t be able to adopt such technology, but the truth is that such mechanism is actually possible, at least Babylon was able to prove that. Babylon was actually able to let Bitcoin holders stake their BTC while still retaining control by simply using Bitcoin’s own scripting capabilities and pre signed transactions, rather than simply requesting for users to give up control of their asset.

The idea is that the holder would actually create a special transaction that locks their coins in a staking output. The coins simply remains on the Bitcoin blockchain and can’t be spent by the owner for that period of time. So I believe that if the banks want, they could also adopt such mechanisms.

[tread93]

Yes, it's good news and great adoption by the bank. They can earn good money from this. Speaking of MARA, they pledged 18,750 BTC, which is around 54% of their Bitcoin treasury, and they risked all this (it is still a risk) to buy a gas-fired power plant for their AI and energy infrastructure. So that's a different business model than their mining business.

But they have to pay $57 million a year in interest, regardless of what Bitcoin does next, but they can probably afford this. But can you? Or a retail investor? It depends on your needs, but it's a good option.

You already mentioned MARA, so I can use its example to emphasize something else, too. It shows how stressful this can be. Haha, I know I am spreading bad vibes, but I don't know, I just always compare the cons and pros. We retail investors are obviously not going to make big moves like this, or maybe we can, but MARA reported a $611M net loss (on paper) because of the BTC dip. Those BTC are locked as collateral too, so they are facing margin calls now.

So the answer to your final question is, if you can handle that margin call, then it's a good option for you. Otherwise, it's not.

Honestly with how volatile bitcoin can be it doesn't seem like an ideal position to be in but hey that is just what comes with the territory. You cant expect that it would be completely risk free and it appears that adoption does come at a price but its not generally something anyone can do

[terrific]

I think that the fact that it goes through them is already considered as centralized.
So, the whole loaning process is within the usual process they do just as how we collateralize the other assets we have.
It's not going to be the same as the DeFi's and they will just go on with the process they used to have but this time, it's not with a tangible asset but with Bitcoin.
The mere difference might be going to the bank itself and showing yourself and that has already defeats decentralization if we're concerned about it.
Because we comply, they'll ask for ids, and other important details and at the same time they know now that we hold btc.

Then that’s a totally bad idea for me. No way I’m gonna give up my Bitcoin, my seed phrase or even my privacy to a centralized body simply because I wanna take a loan. If there are no physical or tangible assets that I can use for the collateral, then I might as well just forget about it and prolly sort for other means to  get the money/loan. I don’t know but I just don’t like the whole “surrendering your Bitcoin to a bank as collateral” idea, I mean it goes against everything Bitcoin stands for.
I change my stance on this topic.

The choice is on us, if you're in a hurry and you're in need of some cash and you've got bitcoin to use as a collateral.
There are exchanges where we can loan and use it. But if you don't think you'll need that, then you better keep it and don't use it.
We're free to opt to it and if not, we can easily sell what we have and the problem is solved and just accumulate again, we have no interest to pay.

[Fiatless]

I don't think it's such a bad idea as it does not only give people access to loans but also the chance not to sell their Bitcoin at a loss.

If a financial need arises when the market is bad or bearish. Instead of selling at a loss, people can get a loan from the bank using their Bitcoin as collateral, and when the market is bullish, they can request the bank to sell their assets and take the loan amount as well as the interest and give them the balance.

There have been cases where people sell their coins after they have exhausted their emergency funds. I have seen someone sell his Bitcoin below the amount he bought it for because of some pressing needs. This loan option might be helpful in some emergencies. Instead of selling your Bitcoin, the bank can use it as collateral while you receive the loan you need.

Some of the problems that might arise are the safety of your Bitcoin in the custody of a centralized platform. Secondly, I would use this service only when they are registered and insured in my country. It would be easier and safer to deal with this Bitcoin collateral loan in my country than with a foreign company.

[blockman]

Honestly with how volatile bitcoin can be it doesn't seem like an ideal position to be in but hey that is just what comes with the territory. You cant expect that it would be completely risk free and it appears that adoption does come at a price but its not generally something anyone can do

There will be some liquidation in it, as per reading the rules of the exchanges that allows this. Those who are not aware of it will see the conditions before accepting the deal, there will be risk for sure and one of it is margin calls and the liquidation. The banks will probably get the copy of the conditions of how the exchanges are doing this type of business. They might have a different approach but it won't be too different from the ones who have established this type of business. Before we've got the DeFis, now this is the rise for the CeFis.

[Tungbulu]

The choice is on us, if you're in a hurry and you're in need of some cash and you've got bitcoin to use as a collateral.
There are exchanges where we can loan and use it. But if you don't think you'll need that, then you better keep it and don't use it.
We're free to opt to it and if not, we can easily sell what we have and the problem is solved and just accumulate again, we have no interest to pay.

Even using your BTC as a collateral in an exchange is another type of risk you know, especially when it’s an offshore exchange. It still comes down to entrusting your Bitcoins to a centralized system without any real or actual insurance coverage. No one know when exactly an exchange would shutdown, for all we know, it could be anytime, and if there’s no one you can hold responsible if eventually that happens, then it’s still a very dangerous move to take.

[wapwapwendy]

However, borrowing against a volatile asset comes with risks. If BTC's price drops sharply, borrowers may need to add collateral or face liquidation. Interest costs also mean this strategy won't make sense for everyone.

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 during the next major market downturn?

Well if a business entity doesnt have much liquid but got  lot of bitcoin, whether its volatile or not they can borrow with a lower finance amount with huge collateral value surpassing that to protect volatility. Its not wise but it can be viable for businessman to have sufficient buessiness operation fund but dont want to sell or liquidate their holdings.

The question of sustainability is subjective and should be based on different factors. This is too early to concludes on bitcoin backed lending approach especially its crypto related.

The part I'd watch is whether businesses can generate enough cash flow to repay the loan without touching their BTC. If the business itself performs well, the collateral is less likely to become a problem. BTC should support the business, not be the only thing keeping it afloat.