I know on reddit conventional wisdom is reinforced by downvoting any challenging content, so to those browsing r/bitcoin/new I want you to remember that downvote is for spam. This is not spam, even if you disagree with my opinions.
I’m trying to get people to HODL.
But its hard, everywhere you look there are scammers, and scammers lie.
Lately theres a lot of talk about bitcoin loans, but people are clearly not seeing the trick.
There are two types of loans—
TYPE ONE - you loan them bitcoin and you get paid interest.
With these loans you give up your keys so that they can then loan your bitcoin out to short sellers at a higher interest rate.
The only reason to borrow bitcoin is to sell it short. If you just want bitcoin, no need to borrow it, you can just buy it.
This is a bad deal because you are risking your ~%90 returns for %6 returns from people who are short bitcoin and facing bankruptcy. When the hedge fund goes bankrupt you have no recourse. You can sue BlockFi, but they are bankrupt and you probably aren’t even first in line.
THE SECOND TYPE - you loan out your bitcoin, and pay them interest, while getting half the value of your bitcoin as fiat.
You are loaning them bitcoin as much as they are loaning you fiat. But they want twice as much bitcoin as they will give you fiat— and they want to charge interest!
Think about that. Which is the safer currency? Which is more volatile? You’re accepting %100 of the volatility risk in exchange for getting a half the value in depreciating currency.
Meanwhile they stand posed to steal your bitcoin, with no recourse, in the event of a TEMPORARY dip!
If bitcoin drops temporarily you can get liquidated WITHOUT a chance to put up more collateral, at any time. This is in the unchained capital rules. I bet blockfi is the same. It happens with software so their claim of “independent third party holding a key” is a lie. The third party works for unchained.
But if it moons they can take their sweet time in covering their butts for what they owe you. With limitations of only doing it once a month, on their terms.
Notice how all of the terms are biased in favor of them? They charge you interest, give you half the value, will liquidate you completely at parity, and severely restrict your ability to collect when the market hoes against their short position (they are short bitcoin, because your bitcoin is a liability to them, while your debt is an asset.)
They have all the power and the rules are not symmetrical. And you are just supposed to trust them.
Part of the scam is they obscure what is really happening, they are pretending this is like a home loan when it suits them. But it isn’t. A home is an illiquid asset and foreclosure is a long process with the homeowners rights being protected. Here you have no rights if you are liquidated, and there is no long process they need to do to sell bitcoin on the market.
They are charging you interest to borrow your bitcoin, but the return on BTC is higher than fiat. Meanwhile they get your bitcoin for free and by being short bitcoin are by definition a worse credit risk than you.
THE SOLUTION:
A genuine solution would be to give you the full fiat value of your bitcoin, which is locked in multisig under strict terms preventing liquidation. During the term of the loan, no changes can be made, without regard to the bitcoin price unless both parties agree.
At the end of the loan, the fiat is paid back and the parties split the return, or losses, due to the Bitcoin price changes.
eg: you put up 10BTC when BTC is at $60k. It goes into a multisig lock with genuine people independent third party. They pay you $600k and the agreement us 50/50 split.
Then later, bitcoin is at $100k. You pay back the $600k in fiat, they pay you back 8 BTC. They profit 2 BTC. You are getting $800k in BTC back on your $600k loan.
If BTC declines, you both share in losses.
This is what a pro-bitcoin company would do. They earn BTC from the loan.
What unchained are doing is betting they will get to seize your bitcoin because of volatility, or make a risk free return on the carry trade of cantillion fiat if they don’t.
You take all the risk. They take none. And a single bad day that is quickly reversed— the kind of thing hedge funds like to cause happen, wipes you out.,
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For reference, because I know people aren’t aware of it:
If BTC drops %30– very common— you have 4 hours. I sire hope you aren’t asleep, and are awake, ready to send them BTC collateral!
If it drops %45, you are liquidated immediately, bo chance to send collateral. How is it multisig if they can liquidate immediately? It’s not. They just pretend like they are accountable.
“If the price of bitcoin drops further and causes the loan to decrease to a CTP ratio of 135%, the time to respond to the margin call is accelerated. Borrowers then have 4 hours to either deposit additional bitcoin collateral or fund a partial repayment of the loan principal to improve the CTP ratio. Finally, in the most extreme bitcoin price drops, Unchained Capital must immediately liquidate loans at 110% CTP. This is the worst case scenario, but we must follow this rule without exception to ensure that Unchained can continue to lend to clients in the future.”
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