I would be very cautious when it comes to news regarding Bitcoin and banks. Accepting BTC as a collateral for loans is good news for the bank and bad news for anyone, who decides to use his BTC as a collateral. The price volatility of Bitcoin means one thing. The bank would require a bigger collateral to cover the risk of sudden price drops. Also the borrower has to send his Bitcoins to the bank, which means the borrower has little to no control over his Bitcoins, after he gets the loan. The bank might come up with an excuse(other than Bitcoin price decrease) to liquidate the loan and take the Bitcoin collateral. We should "be our own bank" and stay away from traditional banks as far away as possible(which is really hard).
Self-custody definitely gives you more control, but it also means you can't easily access liquidity without selling your BTC. For me, the important part is knowing exactly what rights the lender has over your collateral before signing anything. Not every loan is worth that trade-off.
Banks are a soon-to-be dying parasitic breed that are trying to find new schemes to leech off of people. Honestly I personally cannot say that I like banks accepting Bitcoin as collateral.
It's the Bitcoin which is valuable. The fiat trash system will come crashing down one day and then your fiat will be worth nothing. How are you going to get your coins back when paper money is more worthless than the paper it was printed on?
In the short term, it does bring movement in the Bitcoin ecosystem. Nothing sustainable though.
One thing worth considering is that BTC-backed loans don't necessarily depend on fiat disappearing or surviving forever. Their usefulness comes down to whether borrowers can access capital on reasonable terms and whether lenders can manage the collateral responsibly. The real test is how this model performs through a full market cycle.
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 doesnt 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 bitcoins 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.
I think the impact may show up more in how Bitcoin gets integrated into finance than in how many new people start using it. Even if borrowers never use BTC for payments, banks accepting it as collateral could still expand its role in the financial system. Whether that benefits Bitcoin holders long term is another question.
Well, bro, this can't be the real adoption of Bitcoin because they just gave people a way to hand their coins over to them and then not own them because now they own your coins unless you pay the interest on time. Adoption is when banks believe in it. I can be wrong, yep, but they don't believe in it. They are just after customers' money haha.
I think what it means is that some banks realise that Bitcoin is actually slowly becoming more
and more popular and that the general trend is to HODL among Bitcoiners.
Their thinking is if Bitcoiners wont spend their Bitcoin maybe they would spend FIAT, pay interest
and 'still own' their Bitcoin at the end of the loan term.
At this stage of my life being more financially educated my thinking is if I cannot afford to buy it
I cant have it and I am not willing to take out a loan to have it.
The only way banks in general can exist is by issuing loans and they will come up with all sorts of
"products" in order to relieve us of our money. In some examples they will even start regional and
global conflicts and wars in order to grow their profits (as is happening today!)
The tricky part is that keeping your BTC doesn't mean you're free from risk. A borrower might still hold the same amount of Bitcoin, but the debt and interest create a separate financial burden. Personally, I'd rather see BTC-backed loans used for a clear financial purpose than simply to avoid selling at all costs.
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.
Another thing I'd like to see is more transparency around how much BTC is being used as collateral across different lenders. If that exposure becomes too concentrated, problems at one institution could affect others. It's something worth monitoring as BTC-backed lending grows.
I think the long-term part is what matters most here. A bank can make money from these loans while BTC is rising, but the real test is how the lending program holds up during a prolonged bear market. That's when we'll see whether it's a sustainable business or just a bull market opportunity.
Lending isn't hard, they most have been put into consideration before concluding to go public. The Defi models are simple, borrow amount that is less than your liquidation price. It doesn't concern anyone if you take any amount and the Defi will not tell you amount to borrow, as long as your lending is equivalent to your collateral, you can borrow the amount but note once your collateral is getting approaches what you borrow, it will be automatically sold to cover your borrowed money.
The banks will do same, the centralized lending platforms do the same. My big concern is how they are going to handle this collateral Bitcoin. I can trust A Defi with WBTC on another chain to get another coin as borrowed money but I can't do the same with banks when you can't track what they do behind unless if there is an agreements to show collateral reserve wallet address where they hold those coins.
Even if the bank shows its BTC wallet address, I'd still want to know if they're allowed to use those coins for something else. Seeing the BTC in a wallet is good, but that doesn't tell us everything about what the bank can do with it.
