Why Bitcoin-Collateralized Loans Still Work in a Bear Market
Despite talk of Bitcoin heading higher in the second half of 2018, many long and short-term holders are growing impatient – or are even being squeezed out of the market.
HODL The Pain Or Reap The Gain?
The result of a long, slow decline in Bitcoin price 00 which began following the cryptocurrency’s all-time highs in December 2017, social media and community forums are awash with commentators slowly – and highly reluctantly – exiting their positions.
The phenomenon does not affect everyone; research data from Q2 this year shows how around 50 percent of the Bitcoin supply is used for investment rather than trading purposes.
For some, however, ‘hodling’ has become untenable, and the trudging status quo of Bitcoin markets has given birth to a new fledgling market sector aimed at offering an alternative.
Through successors of a trend begun by cryptocurrency p2p loans platforms such as Bitbond and BTCJam, the concept of putting ‘hodled’ cryptocurrency to work in times of market downturns is gaining popularity.
“Miners have to pay (fixed) electricity, warehouse and cooling costs, etc., no matter what the current exchange rate is and often they have no other chance but to liquidate the crypto they are mining now, at these awful rates,” Csaba Csabai, CEO of in-the-works lending platform InLock, said discussing current Bitcoin market characteristics.
If they had the option to get fiat loans using that crypto as collateral they could preserve the crypto and be able to wait until the exchange rate normalizes.
Liquidation No Longer Means #REKT
Csabai was speaking within the context of InLock, his nascent project which aims to offer fiat loans to ‘hodlers’ in exchange for their crypto.
The concept aims to appeal to investors during periods of price suppression, as even if rates decrease further after handing over their crypto collateral, investors will have the fiat and can buy back in at current levels.
“In the event of liquidation, investors can purchase pretty much the same amount of crypto from the fiat loan they took out originally,” Csabai added.
Bitbond, which provides public statistics for its loan volumes, has to date processed around 3050 requests from over 150,000 users – a combined loan amount of almost $13 million.
Long a flat trend, loan popularity shot up in Q3 2017 as Bitcoin prices began their trek to December’s $20,000 highs.
By far the most popular loan period on the platform is 12 months, covering 85 percent of the total.
What do you think about using cryptocurrency as collateral for fiat loans during low markets? Let us know in the comments below!
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