What are the refinance fees? Which entity is giving the loan and taking your BTC as collateral? What if they go up in smoke like FTX / Celsius?
We will likely have another bear market. When the BTC value declines you might be forced to pay off the loan. How will you pay it off? By selling BTC?
I fail to see how anyone can use BTC as collateral to get a loan and not end up selling BTC to pay off the loan. You won't be able to keep refinancing until you don't have to offer any BTC as collateral.
You have touched on a few things here. First is the risk of the custodian of the BTC as security, either going bankrupt, or committing theft of the coin via fraud. We of course all know NYKNYC, but if you are trusting a 3rd party to hold your coin as security, you had better go with a regulated financial institution, and/or hope that their assets are segregated, such that in the event they do collapse, your BTC does not form part of the assets against which creditors have a claim. So, read the lending T&Cs, which few people do. In the event of a lender collapse or fraud, you of course would still have the money they lent you, but usually that would be less than the value of the BTC iit is secured against. A safer way is to do this via smart contract, where the loan is governed entirely by pre-defined variables.
The second point you make really simply relates to volatility. Ie, how can we be sure that the value of the BTC does not drop to a level such that the lender makes a call on the security due to the agreed upon max loan to equity ratio being reached. And this is really about risk management. So, just like with a house, secured by a loan - we know that over time the nominal value of the house will increase beyond the nominal amount borrowed. So, lets say house is 1m, and you borrow 500K (paying interest only). Year 2, house is with 1.1m, year, 1.2m, year 3 drops to 950K, year 4to 900K, 5, 1m, 6, 1.2m, 7, 1.4m, 8 1,7m, 9 2m, etc. In other words, we know the nominal value of asset will go up over time, but we know there is a degree of volatility. So the key is to borrow only as much as the max vol you can tolerate (and then also to have extra BTC available in case you really are asked to top up the loan ratio). So, in other words, say you forecast that at any point, BTC could drop a max amount of 50% in value (Eg now, from 100K to 50K), the most you would ever borrow against that BTC to ensure you are never wiped out is 50K per coin.
