MicroStrategy explores Bitcoin-backed loans, aiming to generate yields without selling its Bitcoin holdings.
Saifedean Ammous warns that Bitcoin-backed lending models could face risks similar to Celsius and BlockFi.
Custodia Bank's Caitlin Long suggests limiting Bitcoin-backed loans to a 1:1 leverage ratio to avoid insolvency.\
The approval of options trading on BlackRock's Bitcoin ETF has reignited discussions around Bitcoin yields. In a recent podcast, MicroStrategy Chairman Michael Saylor highlighted the potential role of Bitcoin in traditional banking systems.
Notably, as the largest corporate holder of Bitcoin, MicroStrategy is in a unique position to explore new financial models. This includes generating yields on Bitcoin holdings without selling them.
According to Saylor, major U.S. banks, backed by the government, could offer USD loans against Bitcoin. This would allow Bitcoin holders to live off their holdings while benefiting from price appreciation.
https://twitter.com/CaitlinLong_/status/1838418573754015785 MicroStrategy's Bitcoin Strategy Faces Mixed Opinions
However, while Saylor is optimistic about Bitcoin yields, not everyone agrees. Saifedean Ammous, the author of The Bitcoin Standard, expressed skepticism during the podcast.
Notably, Ammous compared Saylor’s model to failed ventures like Celsius and BlockFi, noting that Bitcoin-backed lending may not be sustainable without a lender of last resort. He raised concerns over the risks associated with leveraging Bitcoin for loans, cautioning that this approach could lead to financial instability.
Moreover, Ammous suggested that such systems rely heavily on the assumption that the U.S. dollar will not fail. He pointed out that this assumption could be challenged by the ongoing efforts to de-dollarize global financial systems.
Debates Over Leverage in Bitcoin Lending Models
In response to Saylor’s proposal, Custodia Bank CEO Caitlin Long offered an alternative perspective on Bitcoin-backed loans. Long suggested that lending Bitcoin at up to a 1:1 leverage ratio is sustainable.
However, lending beyond that ratio could create solvency issues. The debate over leverage in Bitcoin-backed loans has raised concerns about the long-term viability of these financial models.
Despite differing opinions, the rise of Bitcoin ETFs and yield-generating strategies indicates that Bitcoin's role in traditional finance is likely to expand. This will continue to attract attention from both crypto enthusiasts and financial institutions.
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