Iām not finding that Banks are ready to facilitate these, and even though education is happening, it will be a while before they have structured products throughout the market. So that solves the custody problem. Fully self custodied cold storage bitcoin. Your keys, your coins. You are just putting that bitcoin on the books alongside your holding of the property to do the cost and performance model calculations in tandem. Battery Finance showed up on Squawk Box having done this for an apartment complex, but they are the only ones I know of that are a financial institution doing a mortgage and holding bitcoin both. They wanted to hold the bitcoin for five years, even in case of an early loan payoff. Not sure why, unless they are re-hypothecating. That would be a no-no for me. The only other option I can see would be to incentivize a longer active loan period even if bitcoin spiked and facilitated an early payoff two years into the loan. This would mean that if you borrowed 60% of the property value in a mix of cash and bitcoin, then the bitcoin tripled in value allowing you to pay off the loan after one year, they would still get five years on the loan because your bitcoin is locked up with them for five years. Iām guessing on their inner workings, of course. I donāt know why else they would put a five-year required term on the bitcoin hold. The models I run are on houses where you may have 40-60% equity, and could borrow 10-25% equity for a smash bitcoin buy. This force is a low time preference because youāre looking at a 10 to 20 year old on that bitcoin. Youāre gradually paying it down at a 5 to 8% annual interest rate. Or if itās a rental property you calculate this so that the rents buy your bitcoin. There are more moving parts to this, but this is the gist.
By ārents buy your bitcoinā I donāt mean, buy it, I just mean that the rent income pays down the debt you used to smash buy the bitcoin position that sits alongside that property.
(Also, I used Siri to respond, so those are all her typos.)
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I saw the squawk box piece.
I was wondering about it.
Re-hypothecating is actually all going to be used to short Bitcoin in non cash settled markets most likely. This should get really good interest rates. But itās also the reason you will need a clearing house that can be trusted and guarantee the performance of the agreement. E.G. a trusted intermediary.
We are a long way from this level of complexity.
Agreed. Thatās why my approach ties the two assets together with self custody of the bitcoin being paramount. Doesnāt really work for new purchases. But it does work for property with significant unleveraged equity.
We are getting closer. A simple rules change to allow physical bitcoin creation and redemption may get us there. And ibit is trying to get us there.
https://coinmarketcap.com/community/articles/684164b773501465a1d827d4/
For sure. As soon as we are able to do in-kind redemption and positioning to and from the ETFs it could be all the banks need to bundle collateral assets comfortably in a way thatās compatible with their current structures.
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