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Would you ever use your Bitcoin as collateral? Why or why not?

Would you ever use your Bitcoin as collateral? Why or why not?



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9 Comments

  1. tldr; Hodling is the act of holding onto one’s Bitcoin for long periods, even years at a time. Marathon Digital recently opened a $100 million revolving line of credit with Silvergate Bank that is largely secured (i.e., collateralized) by its Bitcoin holdings. Marathon gets to hold onto its Bitcoin and gets to use someone else’s money to mine more Bitcoin.

    *This summary is auto generated by a bot and not meant to replace reading the original article. As always, DYOR.*

  2. I’ve done it and would like the terms to be a bit different. I think it’s great for a short term need 1-3mo but beyond that the risks and potential loss of alternative interest income make it less attractive. The ltv is also unreasonable and with blockfi, when margin called you can’t withdraw the added balance. So more BTC gets tied up even after a bull run. For example, at 30k I was margin called and now that we r at 55k I’ve got a kind that is encumbering up 5x what it’s should be.

  3. It’s generally a bad idea, and even aside from not owning the private keys!

    Lots of lenders are excited to take btc as collateral because it’s liquid and gives them additional safety. You need to provide more btc than the value of the loan, and if the price of btc drops to a certain point, the lender just sells the btc and your debt is forgiven (you keep the money you borrowed and can’t get your btc back).

    The problem is that flash crashes can blow huge numbers of lenders out of their loans, which makes the price crash further. It also creates an incentive for the lenders to produce these flash crashes so that they can buy btc for super cheap.

    It’s overall very bad for the community and most people using their btc as collateral don’t even realize that they are agreeing to sell it if the price drops!

What do you think?

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