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Strike launches ‘volatility-proof’ Bitcoin loans amid bear market, but at a cost
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Strike, a Bitcoin financial services platform, has launched a new “volatility-proof” Bitcoin-backed loan product that eliminates margin calls and forced liquidations. The product arrives amid a prolonged bear market, offering borrowers protection from Bitcoin’s price swings but at a significant cost. Strike CEO Jack Mallers announced the offering on Tuesday, stating it was developed in response to customer feedback after the company’s first Bitcoin loan product triggered many liquidations during a period when Bitcoin dropped 54% from peak to trough.
The new loan product guarantees that no matter how far Bitcoin falls, the collateral remains untouched, with Mallers emphasizing “no margin calls, no price liquidations.” However, the trade-off includes a higher interest rate, a shorter six-month loan term, and strict payment obligations to avoid liquidation. The maximum initial loan-to-value ratio is 45%, meaning a customer depositing $100,000 in Bitcoin can borrow up to $45,000.
The annual percentage rate (APR) on the volatility-proof loans is 2.95 percentage points higher than Strike’s standard loan product. Standard loans carry APRs between 7.75% and 11.25%, making the volatility-proof loans cost between 10.7% and 14.2%. Mallers explained that the extra charge funds additional hedges in the market to protect both the company and borrowers.
Bitcoin’s volatility has long been a barrier to crypto-backed lending. Mallers noted that Bitcoin has dropped 30% or more in 10 of the past 12 years and experienced at least four drawdowns of 50% or more since 2014. A June report from crypto lending platform Ledn found that while 88% of surveyed investors would consider a crypto-backed loan, only 14% actually use them, citing confidence and market volatility as key reasons.
Industry observers reacted to the product with cautious optimism. Bitcoin investor Fred Krueger said the loan “could eliminate one of Bitcoin’s biggest structural problems: forced selling during market crashes.” He noted that defaults would be driven by borrowers’ inability to service debt rather than temporary price swings. Rob Topping, executive chairman of Vibes Capital Management, called it a “great product for those who need near-term liquidity and don’t want to risk liquidation,” though he acknowledged the 14% APR is expensive.
Strike has implemented strict repayment conditions. If a client misses a payment, they have a 10-day grace period to pay or contact Strike to explain their situation. Failure to do so may result in Strike liquidating the Bitcoin collateral to cover the overdue amount. Mallers warned that prolonged non-response would force the company to sell off Bitcoin, as it would appear as a “hit-and-run."
Other crypto platforms offering Bitcoin-backed loans include Binance, Coinbase, Nexo, and Xapo Bank. Strike’s new product aims to address the volatility concerns that have limited adoption of such loans. As the bear market persists, the success of this volatility-proof loan will depend on borrowers’ ability to manage the high interest rates and strict payment terms, potentially paving the way for more resilient crypto lending products in the future.
