Bitcoin is still early

[FreshPaint]

I think the lowering of interest rates has something to do with BlockFi's exposure to GBTC and the collapsing premium. It's fairly annoying to me as my biggest exposure to bitcoin is through GBTC. However, I'm still HODLing as I know it hurts their profits if the discount gets worse. They'll figure something out, I hope.

[Panscan]

basically, you believe their CEO and other people that talk pretty openly about what they’re doing, are lying.

I don’t think that’s the case.

while the data is conflicting what the CEO says. You said it yourself, it's supply and demand. If they had enough demand why would they cut your rates? I feel like this is a fundamental concept where their model is clearly on fire.

I don't know why institutions would want crypto loans to arbitrage selling crypto. Why don't they just buy and sell the crypto directly for the arbitrage? I guess this lets them do so with more leverage?

[Panscan]

Another critique I didn't bring up early is why would they give interest on the stablecoins? Why would an institution want a stablecoin loan?

[jacoavlu]

while the data is conflicting what the CEO says. You said it yourself, it's supply and demand. If they had enough demand why would they cut your rates? I feel like this is a fundamental concept where their model is clearly on fire.

I don't know why institutions would want crypto loans to arbitrage selling crypto. Why don't they just buy and sell the crypto directly for the arbitrage? I guess this lets them do so with more leverage?

what data? Changing rates isn't data.

Decreasing demand for borrowing of BTC relative to their supply, I'm sure that's the case. Is that a lot less demand? Or a little less demand? Or a lot or a little more supply? I'm sure it's some of both.

That doesn't mean no demand. That doesn't mean their model is "on fire".

They just got a bunch of capital from more investors. You think their investors don't want to see their data? You think investors are putting in equity to a model "on fire"

Just because you don't understand the why, doesn't mean it has to be a scheme. Don't be a hater.

[jacoavlu]

Another critique I didn't bring up early is why would they give interest on the stablecoins? Why would an institution want a stablecoin loan?

I asked the same question months ago. I've come to believe it's one word: liquidity. The whole thing needs liquidity.

BlockFI isn't the only player in this space.

Check out Celcius. They're not VC backed. They pay out 80% of the profits back to users of the platform. Keep 20%. There are others out there as well.

[Panscan]

what data? Changing rates isn't data.

Decreasing demand for borrowing of BTC relative to their supply, I'm sure that's the case. Is that a lot less demand? Or a little less demand? Or a lot or a little more supply? I'm sure it's some of both.

That doesn't mean no demand. That doesn't mean their model is "on fire".

They just got a bunch of capital from more investors. You think their investors don't want to see their data? You think investors are putting in equity to a model "on fire"

Just because you don't understand the why, doesn't mean it has to be a scheme. Don't be a hater.

The model of institutional lending is on fire IMO as seen by the changing rates and the degree of the change. The model of being a loan shark to the guy in his moms basement isn't. I don't think the investors care how the money is made. I just don't see any other logical explanation.

I guess we will see how it plays out. I predict continued reductions in the rate with lower and lower tiers and their institutional demand will continue to decrease. As you said, I am not sure to what degree it has, although I think by their pricing of the tiers you can infer it's a significant drop. They're basically discouraging people with large amounts of BTC from depositing there with the 0.5 % rate, compared to before with 3.0 % where there was some risk reward for those people. I can't imagine many people in that 0.5 % tier will stay in.

Will check out the other similar companies.

I will admit stablecoins are a relative weakness of my already limited understanding of blockchain and crypto but again why do you need to loan these, can't you just exchange them straight up for cash? If you need stable coins to be liquid can't you just trade a dollar for them? If we're doing this at large scales the fees have to be pretty minimal right? I guess if the interest on the stablecoin loan was less than the associated transaction fees?

[jacoavlu]

The model of institutional lending is on fire IMO as seen by the changing rates and the degree of the change. The model of being a loan shark to the guy in his moms basement isn't. I don't think the investors care how the money is made. I just don't see any other logical explanation.

I guess we will see how it plays out. I predict continued reductions in the rate with lower and lower tiers and their institutional demand will continue to decrease. As you said, I am not sure to what degree it has, although I think by their pricing of the tiers you can infer it's a significant drop. They're basically discouraging people with large amounts of BTC from depositing there with the 0.5 % rate, compared to before with 3.0 % where there was some risk reward for those people. I can't imagine many people in that 0.5 % tier will stay in.

Will check out the other similar companies.

I will admit stablecoins are a relative weakness of my already limited understanding of blockchain and crypto but again why do you need to loan these, can't you just exchange them straight up for cash? If you need stable coins to be liquid can't you just trade a dollar for them? If we're doing this at large scales the fees have to be pretty minimal right? I guess if the interest on the stablecoin loan was less than the associated transaction fees?

your logic doesn't really go all the way. To get a loan, you need BTC. Any USD loans have to be over-collateralized in these platforms. Meaning, you want $100k loan? Deposit $150k BTC. So "guy in his moms basement" cannot be their revenue driver because that guy doesn't have a bunch of BTC. Little BTC equal little loan.

I'm sure that institutional demand is decreasing. A lot of BTC shorts have been squeezed out in the rising market. That was some of the BTC borrowing market. Plus supply has increase. People like me. I wasn't there last summer.

The tiers are what they are because I'm sure a lot of people only have 1 BTC or less. So they don't lose too many customers by doing this.

On stablecoins, they're not loaning stablecoins. They just need USD cash liquidity

[Panscan]

I understand the over-collateralization but they don't have to be huge loans for them be making good money on it. I saw they charge up to 9.75% interest plus a 2 % loan fee. Can be the guy with 10k of BTC getting a 5k loan. I don't think they want a bunch of huge loans, I think they want a trillion smaller ones. They want to be like credit cards for the little guy with BTC. I mean heck if they get to charge a 2% fee everytime somebody takes out a loan that is paid back fast, they probably love that, it's free money. It's like a microtransaction structure of loans for traders. A feedback loop of get loan, buy more BTC, BTC goes up, sell some to pay off loan, deposit more BTC, get bigger loan, rinse repeat with fees each time. This is kinda a bullproof model for them IMO, like if you compare to traditional loans and their collateral, sure if the person defaults the bank gets their collateral but the liquidity of that is obviously way worse than BTC.

The collateralization is due to the volatility of BTC. If the vol drops they will decrease the requirement/degree of overcollateralization, enabling "riskier" loans.

So they exchange your deposited stablecoins for cash when they need cash and then just convert back to stablecoins at some point? I guess I don't see why they need cash liquity through their platform if they have VC money. Doesn't some of that serve for liquidity of cash? This conversation may beyond my knowledge with regards to stablecoins.

[Panscan]

Would also throw in that they limit to value of exceedingly overcollateralized loans, like the 5x is limited to 20k. Why would they do this, these are the safest loans on their books? Again, shouldn't they want as many heavily overcollateralized loans as possible?

So many aspects of this seem paradoxical, which is why I'm skeptical. Reading between the lines, they obviously profit more from the less collateralized loans relative to their perceived risk.

[jacoavlu]

Would also throw in that they limit to value of exceedingly overcollateralized loans, like the 5x is limited to 20k. Why would they do this, these are the safest loans on their books? Again, shouldn't they want as many heavily overcollateralized loans as possible?

So many aspects of this seem paradoxical, which is why I'm skeptical. Reading between the lines, they obviously profit more from the less collateralized loans relative to their perceived risk.

have you gone and listened to them actually talk about their business? To try to understand the model?

Just go on your podcast app, search blockfi and Zac Prince. Their head of security Rene something also did an interview pretty recently. Maybe I'm naive but they sound genuine to me. Basically if all what you believe is true then these guys are lying right out there in the open.

[Panscan]

Yes I did and I pointed out what I perceived to be illogical about what they were saying. I don't claim to know as much about this as you do but I think I've looked into far more than most.

There's just too much about it that doesn't make sense such as how the 5x overcollateralized loans have a max whereas the lower overcollaterized loans do not. Why would that be the case? Why would you be ok with issuing a ton of riskier loans but set a cap on the ones with more capital? This defies the expected elasticity for the situation.

What is your risk tolerance/perception, would you keep BTC in there in the second tier? The third?

Genuine and lying are scary words to me when we are talking about these scales. I think they genuinely want to make billions of dollars. Lying is subjective, ya I think it's in their best interest to overstate how much institutional interest they have. They aren't mother theresa. They're going to make money somehow or they will go out of business.

[jacoavlu]

What is your risk tolerance/perception, would you keep BTC in there in the second tier? The third?
.

tier 1 only

[Panscan]

Like lets imagine a hypothetical situation, I have 1 BTC to put up for collateral. Lets assume BTC is worth 50k for simplicity

Their loan tiers are as follows:
20% LTV (5x overcollateralized) at 4.5 % + 2 % fee, so I could get 10k in cash at these rates
35% LTV ( ~ 3x overcollateral) at 7.9 % + 2% fee, so I could get ~ 17k in cash at these rates
50 % LTV ( 2x overcollateral) at 9.75% + 2% fee , so I could get 25k in cash at these rates

From their site " Additionally, 20% LTV is only eligible for BTC-backed loans of up to $20k USD. "

So if you have 2 btc or more they won't let you access the most heavily overcollateralized loan option anymore. Why is that? I can't see it would be due to liquidity because they're not lending these BTC out, they're just sitting at gemini as collateral, right?? Or are they? Would assume with the interest not be given for collateral then they wouldn't?

[jacoavlu]

Like lets imagine a hypothetical situation, I have 1 BTC to put up for collateral. Lets assume BTC is worth 50k for simplicity

Their loan tiers are as follows:
20% LTV (5x overcollateralized) at 4.5 % + 2 % fee, so I could get 10k in cash at these rates
35% LTV ( ~ 3x overcollateral) at 7.9 % + 2% fee, so I could get ~ 17k in cash at these rates
50 % LTV ( 2x overcollateral) at 9.75% + 2% fee , so I could get 25k in cash at these rates

From their site " Additionally, 20% LTV is only eligible for BTC-backed loans of up to $20k USD. "

So if you have 2 btc or more they won't let you access the most heavily overcollateralized loan option anymore. Why is that? I can't see it would be due to liquidity because they're not lending these BTC out, they're just sitting at gemini as collateral, right?? Or are they? Would assume with the interest not be given for collateral then they wouldn't?

you should email them and ask

personally I’ve no interest in any loan product

[Antares]

I hope you are not offended by this, but feel I should call you up on this, as I have made a similar error in the past with exceeding my risk tolerance, overallocating to cash/fixed interest and this leading to bad investments.

I recall you said you increased your bond allocation as a permanent change to AA last year. But now are adding 0.5-2% BTC for speculative risk ?

This sounds like a potential behavioural error to me. I tend to think for those who market-timed incorrectly with Covid, being stuck at home for months with kids, particularly if they are BTC advocates gives you an easy way out of the market timing error.

However, you risk going from one error to another. The initial error may have been changing your AA with covid and then finding you have too much cash/fixed interest a year down the road. Then somehow, this can lead you to buying BTC.

I think it is important to look at your investment plan. Did it ever say invest in 2% in BTC prior to retirement ? Maybe it is the right thing to do or maybe an initial mistake leads to further.

Not offended; appreciate your thoughts. You are right about the asset allocation change at the beginning of Covid. I made some decisions that were uncharacteristic, including selling a high percentage of equities in early Feb 2021, a decision that goes against all my rules. Fortunately I was able to buy back after the market drop, although not until the market had retraced half its losses. I was lucky there, and then overly emotional in permanently altering my AA as I near retirement. So I am certainly not inoculated against behavioral errors. (I have subsequently reflected on my AA and moved it to 50% where I intend to stay).

As far as Bitcoin, that is speculation. I’m not sure it qualifies as a “behavioral error” because I don’t think it’s unreasonable to speculate with a small portion of my portfolio (it’s 1%) - it’s my sole and only speculative holding; everything else is in index funds and some bonds.

Admittedly my investment plan needs to be updated; it was constructed before cryptocurrencies existed. 😉 It does allow up to 4% for riskier investments....