Using Bitcoin as Collateral May Still be Reasonable
Despite the bear market that cryptocurrencies are currently struggling with, it is important to remember that 2018 is only around halfway over. The currency continues to fall, but some speculators argue that there could be an increase in price before the end of the year, perhaps even a correction to a price more closely related to the price before the massive crash of two months ago.
The currency had crashed in price back earlier in 2018. The crash followed closely behind the all-time high for Bitcoin, which was over a spectacular $20,000 in December of 2017. But as the price fell, the bears took over the market. As it currently site, the cryptocurrency Bitcoin has fallen to nearly an all-time recent low, which is at just over USD $6,300 in value. Still, though, optimists and analysts continue to predict that the crypto might once again recover to at least something resembling its all-time high.
But the problems associated with Bitcoin’s crash, and the possible benefits to its recovery, are not merely limited to the currency and prediction market itself. Bitcoin is used for thousands of things, and the cryptocurrency market is uniquely predisposed to assist in a variety of industries all over the world. One of the largest uses of the cryptocurrency has always been as a sort of collateral against the harsh conditions of the traditional, fiat economy.
Bitcoin as Collateral
But Bitcoin can also be used as collateral in the more traditional sense. The lead executive of a major investment bank elaborated, saying that mining companies would benefit greatly from being able to use cryptocurrencies as collateral when paying for fiat-sold necessities such as gas, electricity, and rent. Csabai is an executive of InLock, a massive lending platform on the blockchain.
He outlined that this sort of loaning of fiat money is perfect for “hodlers,” or people who hold onto Bitcoin in the hope that it will eventually reach exuberant prices. In theory, the lending process is relatively simple. They simply lend cryptocurrency holders a specific amount of fiat cash, using their cryptocurrency as collateral for the loan.
As long as they pay the loan back, often with an amount of interest tacked onto the end relative to the time the loan was held for, they do not lose their cryptocurrency. This system would be incredibly helpful to investors who need quick money and will be likely to be able to pay the cash back eventually.
But it also solves a major problem in the current status quo. With the quickly depreciating value of cryptocurrencies, sometimes miners are forced to sell all of their cryptocurrencies at a loss in order to pay for the basic necessities required to keep their business afloat. With this system, however, loans are given based on the price of Bitcoin currently, rather than the price of the coin later on down the road.
That way, investors are able to “hodl” their coin without missing out on important investments and expenditures.