RE: Playing The Dangerous Loan Game

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There's also a significant exchange rate risk with borrowing in crypto and using it for fiat transactions. Of course if crypto goes to hell then the borrower wins.

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I am not sure what you mean, could you explain lol

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No worries. It is similar to foreign currency denominated loans. E.g. if they have to repay a loan in a year's time and the price of Bitcoin is now $100,000.

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But that's not how BTC loans work, you only using it as collateral for a fiat amount. So if you wanted a 100k loan you'd put in 4 BTC now and then you can get 100k. If BTC drops you may need to post additional collateral if it breaks your loan to value ratio

But you'll always just have to pay the 100k+ interest back, regardless if the price goes up, if the price goes up its even better because you can refinance at a better LTV ratio and get a better rate

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Ah I see, thanks for clearing that up for me. So in yhis case it's worse if btc falls.

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Yes correct, if BTC falls you;re on the hook for adding more collateral, but there are several options.

Let's say you added 1 BTC and you got $25 000 on a LTV of 50%

If BTC keeps dropping lets say to $25 000 each

  • Add more BTC to keep the value at 50% collateral so you'll need to add another 1 BTC
  • You can also pay back a portion of the loan faster and reduce the payments
  • Or you can extend the loan on a higher collateral level and pay a higher interest rate

So there are options so you can avoid margin calls and losing your BTC, but yeah its not without risk and you need to have done your homework

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