It is the year 2150. The world is fully hyperbitcoinized. A man own 2 bitcoins and he want to buy a house for 1 bitcoin. He is very smart so he decides to take a loan on his Bitcoin rather than spend them for the house. That way he can have the illusion of still owning 2 bitcoins.
I am not very intelligent. Not like this man. So please explain to me the process here. How would all this go down?
I would assume the same way it goes down today with fiat. You take the Bitcoin, buy the home, and slowly pay it back with interest. The only difference is the bank is lending the Bitcoin they actually have in custody, non of this fractional shite
That make sense if the person doesn't give a bigger Bitcoin collateral than the loan itself. I think there will be such kind of loans in the future.
In my thought experiment the person use his 2 Bitcoin as collateral to get 1 Bitcoin and buy the house. In this situation I wonder why the person would decide to pay interest instead of simply spending the coins.
I get the thought experiment. This idea is something that floats around now. Borrow against your bitcoin and never have to pay the loan back because Bitcoin goes up year over year. So as Bitcoin goes up in fiat price year over year, you can re-collaterize your loan and never have to pay it back. I think that strategy works now but in 2150 when fiat no longer exists and cryptocurrencies and tokenization are the base layer of the financial system, I think you must trade your bitcoin at that point.
I won’t be around in 2150. Not terribly worried about that 🤷♂️
Yes, they serve only right now as away to leverage the Bitcoin trade harder. It's very not much different than going on a trading platforms with 1x leverage except you can spend the money now. Imo it's even worse for market signals.
So you are against the idea entirely?
Yes. In the sense that I would never recommended someone to do this. I believe in the "stay humble and stack sats". To me this also means don't participate in such schemes in hope to get even more gains.
With that said, it's not impossible that the people who participate in this scheme end up winning from it. At the end of the day I'm also bullish on Bitcoin and bearish on fiat. I also have this fomo and the temptation to leverage myself.
My biggest problem with those loans is that they aren't being sold to us in an honest manner. First of all, we're told it's a way to keep ownership of the coins but by definition a loan means you lose complete custody and therefore they are not yours anymore. Also we're told they are a revolution in finance when, if we're being honest, it's just a way to go leverage and will eventually disappear as a service.
Every person will interact with the network differently. I’m with you in essence though. At this point of my journey, I am not against borrowing against your own BTC but would caution against it or be overly bullish on it. I agree that this is a service that will not be around forever
My understanding is he would still have to pay back the loan eventually. But the 2 bitcoin show the lender he is responsible with his money and can/will pay back the loan. If he doesn't they get to keep it.
With a deflationary currency he might not even have to pay interest. 🤔 Everyone could still win, the lender gets back their initial investment, now worth more purchasing power. The borrower gets to make the investment on their own time table.
Why would I lend a bitcoin if I get nothing in return? Why would I even bother? I'll just keep it in my custody and wait. There HAS to be an incentive for someone to lend even if the risk is at the minimum.
But why would the person even borrow in the first place if he already has the money? If I borrow 1 coin I still have to earn it back. So why would I not just spend it and earn in back. There's a lot less hassle that way. I won't have to deal with lenders.
I don't see the incentive in any side to participate in this.
Good point, so there probably would still be some interest to make it worth while for lenders, who have the excess.
On the borrower side, I think borrowers would be more selective in their borrowing.
So in this scenario, maybe he thinks the house will pay itself off, and generate revenue, or locate him where he can generate more revenue. However... unless he can get multiple loans from that same stack, or still use it, I can't think of a good reason he wouldn't just pay if he already has the money. Besides what you mentioned, the illusion of still having 2 bitcoin. Or maybe onchain fees are so high it makes sense to get the loan in lightning (or whatever) that's a more liquid assets short term?
