Oddbean

The 5% interest in a savings account is supposed to come from the people who are borrowing your money at a higher rate. You and me both know that's not how it really works, but that's still how most people see it. I know the total supply of Bitcoin is fixed, and that there is no "native yield" to Bitcoin. But if you lend your Bitcoin to someone at 5%, and they are able to repay, then you get a 5% yield. The fiat/Bitcoin yield is much more sustainable because your liability is dollars. When you get a loan, new dollars are created. So let's say you gain $10,000 in dollars as an asset, and owe back $11,000 as a liability in one year. By buying Bitcoin with the dollars, you get Bitcoin and you also increase the marginal price of Bitcoin. Combine that with Bitcoins fundamentals, and as long as the Bitcoin is with more than $11,000 in a year, you get to keep the difference in Bitcoin. That is your yield. The yield comes from the people who sold you the Bitcoin at the lower price. That is the game currently being played.

I understand all that. I’m just disagreeing on the definition of yield. But there doesn’t seem to be a consistent definition of yield so you could be right. Yield seems to mean different things in different contexts. In the “crypto” industry, yield is letting the exchange/bank hold your coins in return for x% back. The yield that they pay you has to come from somewhere. So they do risky shit until they get rekt. That is very different from getting a loan against your Bitcoin at unchained. In this context, saylor wants to earn yield on his Bitcoin from chase bank. He talks about it on the podcast I posted. That is the future he envisions. But he doesn’t understand, or pretends to not understand, that this yield is not risk free. That the money has to come from somewhere and that there is no lender of last resort in bitcoin. There is no risk free yield. They can’t just print more Bitcoin.

Fiat is an unfair, rigged system which benefits the elites who can print money. People like Saylor are going to use that system to get as big of a Bitcoin position as possible. If anything, if I was Saylor or Blackrock, I'd say whatever stupid shit I needed to in order to shake people out and get cheaper Bitcoin. Everyone likes cheap Bitcoin and sellers provide the yield.

The risk reward ratio of such leverage increases over time. In the long run, guaranteed rekt… The main problem with leverage is improper planning, commonly the false assumption that Bitcoin price won’t plummet or that other activities will bring steady income to service leverage interest. When it comes to debt, most people should probably have some in order to maximize bitcoin returns. But not too much! Taking on debt denominated in dollars was typically only wise for things like houses and sometimes education, but in the Bitcoin world, there is an non-zero interest rate at or below which even buying groceries with debt makes sense. But securing a loan with bitcoin gives terrible rates. Thought process: should one buy bitcoin or a house? Bitcoin. Ok, so you bought a house. Should you buy Bitcoin or a car? Bitcoin. Ok you bought a car. Should you DCA in to bitcoin now, or sell all your possessions and yolo in. You should yolo. Ok, you’re on the DCA path. Should you borrow from home equity to buy Bitcoin or should you just keep DCA. So you just keep DCA. Then someone says: shouldn’t you diversify your assets? No. So you diversified your assets, but kept half your stack and kept stacking, but at a lower rate. All of these “safe” choices turn out to be very very costly. But it’s true this path minimizes risk. But this is the path most of us choose and I’m guilty of it. If I would have borrowed $10,000 from the bank of mom and dad in 2010, I’d be a billionaire. But I’m risk averse and stupid.