Definition ∞ Bitcoin collateralization means using Bitcoin as security for a loan or financial service. Borrowers commit their Bitcoin holdings to a lender, receiving traditional currency or another digital asset. This method allows Bitcoin holders to acquire funds without divesting their assets, preserving their market position. The security amount is usually greater than the loan to offset price fluctuations.
Context ∞ Bitcoin collateralization plays a key part in decentralized finance and centralized crypto lending offerings. It facilitates numerous financial products, including stablecoin creation and leveraged investment activities. The endurance of these systems rests on effective liquidation processes and precise price reporting. Market reports frequently discuss the hazards tied to Bitcoin’s price movements and the possibility of mandatory liquidations if security values fall significantly.
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