Key facts
- Strike's new Bitcoin-backed loan product is designed to be 'volatility-proof'.
- The loans eliminate margin calls and forced liquidations regardless of Bitcoin's price.
- Borrowers face an annual interest rate of up to 14.2% and a six-month loan term.
- Missed payments require action within 10 days to avoid liquidation of collateral.
- The maximum initial loan-to-value ratio is 45%.
Bitcoin financial services platform Strike has introduced a new type of Bitcoin-backed loan designed to be 'volatility-proof,' shielding borrowers from margin calls and liquidations even if the cryptocurrency's price plummets. This product aims to address a key concern for crypto investors who have historically faced forced selling during market downturns.
However, this protection comes at a significant cost. Strike CEO Jack Mallers stated that the loans carry an annual interest rate as high as 14.2%, a shorter six-month term, and require borrowers to make payments on time. The maximum loan-to-value ratio is set at 45%, meaning a borrower can receive up to $45,000 for every $100,000 worth of Bitcoin collateral.
Mallers explained that the higher interest rate funds additional market hedges designed to protect both the lender and borrower. This new offering is a response to customer feedback following Strike's initial Bitcoin loan product, which saw many liquidations during a period of significant Bitcoin price decline. A report by Ledn indicated that while many crypto investors are open to crypto-backed loans, adoption remains low due to confidence issues and market volatility.
If a borrower misses a payment, they have a 10-day window to rectify the situation or contact Strike. Failure to do so may result in Strike liquidating the Bitcoin collateral to cover the outstanding debt. Mallers emphasized that while the loans are 'volatility-proof,' they are not 'liquidation-proof' if borrowers fail to service their debt.