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If you took out a loan against your bitcoin and are currently being margin called, will you warn others about doing the same?

Will you take a close note of the people/companies who created these products, who backed them and who shilled them?

Please think long and hard about these products and do not risk getting rekt.

Andy Scott 1mo ago 💬 10

I'm a Strike customer and have a huge amount of respect for nostr:nprofile1qqsvf646uxlreajhhsv9tms9u6w7nuzeedaqty38z69cpwyhv89ufcqpp4mhxue69uhkummn9ekx7mqpr4mhxue69uhkummnw3ez6ur4vgh8wetvd3hhyer9wghxuet5tm8sjr , but the borrow against your bitcoin narrative has been something I've struggled to reconcile in my own mind. I've tagged Jack as a Strike user, but it could have been any number of people really.

As I understand it, Strike have partnered with financial service companies like Nydig to offer the funding for their loan products. That's Nydig led by Ross Stevens, who was interviewed by Saylor at the MSTR world conference in 2021. I reference that because Nydig clearly understand bitcoin deeply.

Amongst that understanding will be that, if measured in dollars, as an asset within the current system (which it's not), it has a CAGR of roughly 50%. It begs the question then, why would they sacrifice this return for an interest rate of 10% on capital lent out to bitcoiners? Particularly if they understand this at a fundamental level.

The play here is to amass bitcoin and it seems clear to me that they will have run the probabilities and come to the conclusion that enough people will get overstretched, under-collateralised, and ultimately margin called.

They're always 12 month terms, which is not a safe investment period given bitcoin's volatility. Jack and Mark Moss have both given examples of how these products could work, but always with a 12 month loan, whereby magically, at the end of this period, bitcoin's price will have risen 50%.

I find it totally misleading and, given that bitcoin is perfect collateral and doesn't require credit checks, people will be able to enter into these loans very easily.

I'm sure I'm getting something wrong along the way, maybe with how the funding process works behind the scenes, but I'm old enough to remember 'not your keys, not your coins'. This message seems to have been lost in the name of 'collaborative custody'.

I can't help thinking that a lot of people are going to have to eventually make a choice between defaulting on their loans or continually posting more and more of their stack as collateral.

I'd love to hear a response as to why I'm getting this wrong.

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Discussion

Daniel Prince 1mo ago

Thank you for sharing, Andy.

Lebanese Hodl 1mo ago

It only works if BTC goes up. Picking the right 12 month within 4 years is an incredible variant here that shouldn’t be underestimated. Very few people talk about it.

Arotags 1mo ago

Very interesting thoughts. Boosting to get more conversation started on this. I wonder if there is any future plans to bring type of multi sig wallet behind the Borrow product to hold the collateral. I’m also a big fan of Strike and nostr:nprofile1qqsvf646uxlreajhhsv9tms9u6w7nuzeedaqty38z69cpwyhv89ufcqpp4mhxue69uhkummn9ekx7mqpr3mhxue69uhkummnw3ezucnfw33k76twv4ezuum0vd5kzmq8m2uqr so I’m glad people are bringing light on this because they’ve been fully transparent on everything else so far.

Jake Woodhouse 1mo ago 💬 1

I have yet to take debt against any Bitcoin, I just haven’t been able to make sense of it either

- liquidation risk

- counter party risk

- peace-of-mind risk

- tax risk

- re-hypothecation risk

Is it really worth it, especially when you have to over-collateralise?

Picking up pennies in front of a steamroller as they say

It’s kind of like the medical industry, that can’t monetise rest, sleep, mindfulness, healthy diet, so push solutions that don’t hit the root cause

It’s hard to monetise bitcoin in self-custody, crunching away with a huge cagr, and no counter-party risk, so the fintech world can’t stop themself

In regards to the opportunity cost of the lender lending vs owning Bitcoin, I think there are a number of reasons why those with lots of dollars want to keep dollars at 12% apr. Could be they are a dollar only fund. Could be they aren’t allowed to buy Bitcoin

I liked Debifi in theory, and there was a lender on there who just wanted a roi on dollars, but I got a poor review of the management, and the liquidity and sizing is poor

Sygnum Lombard loan was the most interesting, but even then, when you take the loan, what are you buying? Hard to square it away

Would love to learn what I am missing

But I think the truth is: self-custody, and go live life, you will outperform the market with far less risk

🙏🏻

NowClip 1mo ago

Pedophile

Boog 1mo ago

Make sure you have dollars or bitcoin to prevent liquidation

n0>1 1mo ago

Greed always catches us eventually. I think we want to get away from leverage and borrowing.

DarthCoin ₿⚡️ 1mo ago

Knightstr 1mo ago

It’s usury. Period. There’s a place for credit in life, I’m not saying you should borrow 0 money ever.

But the intent is to get your bitcoin. Otherwise they wouldn’t offer the product.

Gaftoso 1mo ago 💬 1

I'm pretty sure Jack said he only does like 5% of his stack so he has more than enough to meet the margin calls. End of the day we are all big boys here and the product might not be for you but it might be for someone else. Do your own research and Caveat emptor.

Andy Scott 1mo ago 💬 1

Agreed. But they will know full well that many people will gamble with larger portions of their stack.

My brother works in finance and he's always seen 2008 as a result of irresponsible borrowing. But there are two sides to every coin. Predatory lending is the enabler of irresponsible borrowing.

Gaftoso 1mo ago 💬 1

You're right. Many will use it as some kind of leverage, perhaps the majority, but I see it as a important step stone to living in a full bitcoin standard. It's not ideal but it's what we got for now.

Andy Scott 1mo ago

Maybe. Honestly, I've got more questions than answers at this stage. The two systems are fundamentally incompatible. These products use bitcoin as an asset within the current financial system, rather than recognise it as something completely new, freestanding and independent.

I appreciate nostr:nprofile1qqsvf646uxlreajhhsv9tms9u6w7nuzeedaqty38z69cpwyhv89ufcqngza3a. He's one of the best orators on these topics in this space. I fully believe he's a good actor and simply creating things in response to customer demand. He's a prolific contributor and we're lucky to have him. I'd like that to be completely clear.

I just can't square the circle of using bitcoin as collateral within the debt based fiat system, when I see it as a replacement. Perhaps it's part of the bridge to get there, hence why I ask the questions.

Little Johnny 1mo ago

Yes, I echo the sentiment.

I suppose that (at the moment) it’s (not but it’s supposed to be) a free world so Jack Mallers and everybody else is free to do whatever they want. And I am free to 🤮 when I see what they are doing.

The whole planet is about to reach peak communism/fascism, and some of us (not many, thankfully!) are trying to convince others to gamble their life raft tickets.

Well… like said, people are free to do whatever they want. But the next time when somebody, who is asking people to borrow against their #Bitcoin, delivers a very emotional keynote speech in which he talks about economic hardships leading into very sad outcomes, this is the proper reaction: