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2023-10-16 14:56:24

Finney21 on Nostr: P01 - proof of study Notes session 10.16.23 [812460] Research topic: #Bitcoin ...

P01 - proof of study

Notes session 10.16.23 [812460]

Research topic: #Bitcoin collateralized loans


Bitcoin is the reserve asset of the internet economy

The internet economy is an aggregate economy of the entire world and is larger than any single nation economy

Bitcoin is pristine digital collateral for lending

Pristine meaning: Not spoiled, corrupted or polluted

Collateral: something pledged as security for repayment of a loan, to be forfeited in the event of a default

Collateral is something provided to a lender as a guarantee of repayment. It is used to secure a loan

Collateral reduces risk for lenders because if a borrower defaults on the loan, the lender can seize and liquidate the collateral

People who own Bitcoin will have access to the best interest rates

Bitcoin is the apex collateral in a digital world (largely because to it’s unmatched liquidity)

Bitcoin is replacing treasuries as the apex reserve collateral

Why is a Bitcoin collateralized loan a useful product? It is a tool to help individuals or companies avoid ever selling their Bitcoin

By borrowing against your Bitcoin instead of selling it, you:

- Eliminate capital gains taxes (Bitcoin is considered property, therefore a taxable event is created everytime you sell or exchange it)

- Continue to benefit from the price appreciation of bitcoin

- Can write off the interest expense of the loan

Areas to research:
- Dynamically refinanced loans (monthly)
- Counterparty risk of different bitcoin backed loan products
- Rehypothecation considerations

Loan-to-value ratio (LTV): The maximum amount of a secured loan based on the market value of the asset pledged as collateral

A low LTV (conservative) provides protection from liquidation in case the underlying asset has a significant drawdown in price

Bitcoin backed loan products to review: LEDN, SALT lending, Unchained capital, Coinbase

Factors to consider: custody risk, rehypothecation, insurance, origination fees, interest rate, Loan to value (LTV), collateral to principal (CTP), prepayment penalties, tax implications, loan maturity options

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21 min
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