I'm a Strike customer and have a huge amount of respect for nostr:nprofile1qqsvf646uxlreajhhsv9tms9u6w7nuzeedaqty38z69cpwyhv89ufcqpp4mhxue69uhkummn9ekx7mqpr4mhxue69uhkummnw3ez6ur4vgh8wetvd3hhyer9wghxuet5tm8sjr , but the borrow against your bitcoin narrative has been something I've struggled to reconcile in my own mind. I've tagged Jack as a Strike user, but it could have been any number of people really.
As I understand it, Strike have partnered with financial service companies like Nydig to offer the funding for their loan products. That's Nydig led by Ross Stevens, who was interviewed by Saylor at the MSTR world conference in 2021. I reference that because Nydig clearly understand bitcoin deeply.
Amongst that understanding will be that, if measured in dollars, as an asset within the current system (which it's not), it has a CAGR of roughly 50%. It begs the question then, why would they sacrifice this return for an interest rate of 10% on capital lent out to bitcoiners? Particularly if they understand this at a fundamental level.
The play here is to amass bitcoin and it seems clear to me that they will have run the probabilities and come to the conclusion that enough people will get overstretched, under-collateralised, and ultimately margin called.
They're always 12 month terms, which is not a safe investment period given bitcoin's volatility. Jack and Mark Moss have both given examples of how these products could work, but always with a 12 month loan, whereby magically, at the end of this period, bitcoin's price will have risen 50%.
I find it totally misleading and, given that bitcoin is perfect collateral and doesn't require credit checks, people will be able to enter into these loans very easily.
I'm sure I'm getting something wrong along the way, maybe with how the funding process works behind the scenes, but I'm old enough to remember 'not your keys, not your coins'. This message seems to have been lost in the name of 'collaborative custody'.
I can't help thinking that a lot of people are going to have to eventually make a choice between defaulting on their loans or continually posting more and more of their stack as collateral.
I'd love to hear a response as to why I'm getting this wrong.
