Can you borrow against bitcoin?

But in plenty of ways, Bitcoin and other cryptocurrencies still work like many other financial assets, and that means that you can borrow against your Bitcoin holdings. What Is a Bitcoin Loan? With a Bitcoin loan, a borrower typically offers up their bitcoins as collateral, and the lender holds the collateral, gives them cash, and charges interest.

What is a bitcoin loan and how does it work?

Instead of having to sell their crypto holdings for U.S. dollars, they can simply borrow the cash they need. The loan is secured by their bitcoin, which acts as collateral.

What happens if you default on a bitcoin loan?

The volatility of Bitcoin and other cryptocurrencies means that the amount of the digital currency that you have to put up as collateral may be many times the amount of actual cash you receive in the loan. That, in effect, multiplies the amount you stand to lose if you should default on the loan.

Can bitcoin be used as collateral?

A loan backed by an essential, illiquid, indivisible asset can cause a catastrophic loss for the borrower. The difficulty of valuing and dividing collateral can lead to bad debt, even if the money was used to buy something that increases in value. Bitcoin as Collateral Three properties make bitcoin unique as a form of collateral: Fungibility.