I know this exchange of time for bitcoin stack is what Pierre is doing at Riot but I see utilization of bitcoin stacks in another way. In order for bitcoin to fulfill its potential as money, it has to be used at capital. It is the hodlers dilemma: bitcoin outperforms all markets on a 4-year duration so why would you spend it?
If I’m not going to sell bitcoin but I want to buy tangible assets I think I can derive value from…the only other option is to collateralize loans with my Bitcoin … denominated in whatever currency the seller of the asset will accept.
The crux of that strategy is that the use of capital from those bitcoin collateralized loans has to beat return on equity expectations. Its “debt vs. equity” competition not “capital investment vs. bitcoin” competition.
In that way my bitcoin debt becomes the equity underwriting conventional economic deals. And the competition isn’t outperforming Bitcoin, it becomes outperforming traditional equity - likely private equity where equity expectations are 20%+.
That being said, right now the bitcoin loan market is far too shallow and short-term (6 months) and expensive (14%) to deploy this strategy widely and with sufficient risk-management to ensure you don’t lose your coins chasing projects but I believe it is where we are heading.
Ultimately Bitcoin has to engage in the real world in real financial markets.
There needs to be downward pressure on interest rates and outward pressure on duration for bitcoin collateralized loans. Only in that way will Bitcoin start to act as capital competing in the marketplace.
As an aside, in @MartyBent rip with Matt Dines, Matt says these loans have a 3% fee!? Crazy expensive…I’m guessing just because the market is so shallow and they have to keep people employed. I would expect that goes down over time.
cc: @bitcoinpierre @preston @LynAlden @Jeff Booth @jack @ODELL
I know it's a cliche but we are still very early in Bitcoin. CAGR last 10 years is about 60%/year, difficult to consistently beat that. As it tapers down and we get closer to hyperbitcoinization, it'll change.
On a long enough time scale, CAGR is infinity when measured in USD. Few understand this.
infinity in nominal terms, sure 😂
Why not in real terms? There's still (effectively) infinite resources and only 21m Bitcoin.
Infinity divided by 21m is still infinity.
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