How to Protect Your Bitcoin Assets: Using Liquidium Borrowing as a Put Option

Borrowing BTC against Bitcoin L1 assets, such as Ordinals, Runes, and BRC-20, on Liquidium is in many ways like buying a European put option on your Bitcoin assets. 

So, instead of looking at borrowing BTC to access bitcoin liquidity as a risky venture, you can look at it as protecting your position by buying a put option - the protection and “insurance” that goes with it.

Read on to learn how you can buy a de facto put option on your Bitcoin assets by borrowing BTC on Liquidium.

What Is a Put Option?

A European put option refers to a financial agreement that provides you with the right, though not the obligation, to sell an asset at a fixed price (the strike price) on a specified date. 

For this privilege, which protects you from a decline in the value of the asset, you pay a premium or option fee. This allows you to reap benefits if the time comes. 

For instance, if the price of the asset you borrowed drops below the strike (the specified contract price), you are “in the money.” The profit on your derivatives position is the difference between the strike price and market price, minus the premium you paid for the put. 

How Is Borrowing BTC on Liquidium Like Buying a Put Option? 

Borrowing bitcoin on Liquidium is so much like buying a European put option for multiple reasons. 

For starters, you’re putting up your assets (in this case, L1 Bitcoin-native tokens like Runes, Ordinals, BRC-20) as collateral and receiving something in return (BTC).

You also pay an interest fee (which acts like an option premium) and get the right to walk away, or simply default later if the floor crashes. 

Finally, you have options for different terms, such as a fixed expiry date - the very definition of a European options contract that limits execution to its expiration date.

What Happens When Your Bitcoin Assets Go Up in Value?

When your Runes, Ordinals, or BRC-20s appreciate, you simply repay your BTC loan and interest, and get your collateral back. 

Now, if you want, you can sell the asset at a higher price and take the profit. Therefore, you paid a small fee for protection, i.e., hedging your position, but kept the upside.

What Happens When Your Bitcoin Assets Go Down in Value?

Conversely, if the value of your Bitcoin assets drops below your BTC loan value, you can simply default. It means that while you lose your collateral, you keep your borrowed bitcoin.

For example, if you borrowed 0.5 BTC and the value of your Runes tokens collateral dropped to 0.3 BTC, you still keep BTC while losing a less valuable Runes after the default.

How to Borrow Bitcoin on Liquidium (to Hedge Your Position) 

If you want to gain access to Bitcoin liquidity, you can easily borrow BTC on the Liquidium app, using your Runes, Ordinals, or BRC-20 tokens as collateral. As a matter of fact, the whole process only takes a few minutes to fully set up.

1. Find the Runes/Ordinals/BRC-20 token you own and are willing to put up as collateral by browsing the list in the ‘Borrow’ section of the Liquidium platform or using the search bar.

2. Review the available loan offers with different terms, amounts, interest rates, and LTV ratios, and pick the one that works best for your borrowing needs.

3. Select your transaction processing speed, like medium and high speed, tweak the fee, and lock up your collateral in Liquidium’s smart contract acting as escrow.

4. Confirm the loan in your wallet. Wait for the lender’s approval of the loan from their side, and the loan term will start.

For a full walkthrough on borrowing and lending Bitcoin on Liquidium, consult the detailed user guide here.

Access BTC Loans on Liquidium & Protect Your Bitcoin

At its core, borrowing bitcoin on Liquidium is like buying a protective put. You get liquidity, keep the upside, and cap the downside, all native to the Bitcoin network and fully on-chain. 

So, keeping in mind the benefits and ease of accessing BTC loans on Liquidium, you can start doing it yesterday.

With Liquidium, you’re not just taking out a Bitcoin loan, you’re creating a European protective put option for your bag. This matters a lot in volatile market conditions.

Access Liquidium today and unlock instant BTC liquidity.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Always do your own research before making any financial decisions.

FAQs

Can I buy put options on Bitcoin L1 assets?

In a way, yes, because you can buy de facto synthetic put options on Bitcoin assets such as Ordinals, Runes, and BRC-20s by using Liquidium. You just need to borrow BTC against your assets on this platform, and if your collateral goes down in value, you can default on your loan (losing your collateral asset) while keeping your bitcoin to off-set the loss on the value of your collateral. When the value of your collateral increases, you just repay your loan and reclaim your assets.