Bitcoin Drops, Borrower Takes the Hit: How Jeonbuk Bank Protects Its Loan

Should Bitcoin decline, Jeonbuk Bank's collateral value follows suit. While lower loan-to-value limits and margin-call triggers are meant to help borrowers to contribute Bitcoin or pay back some of the loan as collateral coverage declines, the bank uses pricing from several exchanges and accounts for volatility.

Should the borrower default or fails to satisfy a margin call, the bank may seek payment by a court-supervised sale of the collateralized Bitcoin. The won-denominated debt benefits from the income; any excess should go back to the borrower and a shortfall might still be the borrower's obligation. Though not managing or acquiring ownership of the Bitcoin, the bank lends money.

Though hazards persist, conservative lending limits, stress tests, third-party custody, and a legal liquidation process enable the bank to lower its exposure. Bitcoin might fall faster than collateral can be sold; forced sales could have slippage, and margin calls can strain business borrowers. A Bitcoin fall finally transfers market risk from the bank to the borrower.