MicroStrategy’s Michael Saylor Proposes Bitcoin-Backed Loans, Why It’s A Bad Idea?

Highlights

Michael Saylor pitches for generating yields through leveraging users' Bitcoin holdings.
Saifedean Ammous, author of The Bitcoin Standard, expressed doubts about Bitcoin yield models, likening them to failed ventures like Celsius and BlockFi.
He warned that such systems could collapse without a lender of last resort.

Following the green light from the SEC for the options trading on BlackRock Bitcoin ETF, discussions regarding Bitcoin yields have sparked up once again. In a recent podcast debate, MicroStrategy Chairman Michael Saylor shared his opinion on Bitcoin’s role in the traditional banking system.

Michael Saylor Proposes Bitcoin-Backed Loans

In the recent debate on leverage, banking, and Bitcoin, prominent crypto figures Michael Saylor and Saifedean Ammous shared thoughts on the common synergies between Bitcoin and the traditional banking sector.

Saylor said that the too-big-to-fail US banks backed by the government can offer users USD loans against their Bitcoin holdings. He added that this would allow BTC holders to generate yield and live off their BTC without selling them. Additionally, they would also benefit from the BTC price appreciation coupled with the credit risk of major banks like JPMorgan, Citi, or Bank of America as an advantage.

Microstrategy is the biggest corporate holder of BTC currently. Last week, it conducted $1.01 billion in convertible notes debt offering to buy Bitcoins. Thus, with a large stash of 252,220 BTC, MicroStrategy can benefit majorly from Bitcoin yields.

Why Is It A Bad Idea?

However, in the podcast, Saifedean Ammous – the author of The Bitcoin Standard – has expressed skepticism over the viability of the Bitcoin yields. He said that models like this could lead to failures similar to the one we saw with Celsius or BlockFi. Besides, he also cautioned that such systems are unsustainable without a lender of last resort. Ammous believes people will eventually learn the risks of leveraging BTC in this manner.

Saifedean clearly points out that MicroStrategy’s model depends on the assumption that USD would never fail. But with the rising calls for de-dollarization and the BRICS payment systems in work, how long would USD dominate the global financial system?

Saif correctly exposes that the MSTR model is dependent upon the dollar not failing. But Saylor is right that its not going away in short run. Mid term? We’ll see.

— Bill Barhydt (@billbarX) September 24, 2024

In order to bridge this lending gap, Custodia Bank CEO Caitlin Long proposed that “lending BTC up to 1:1 leverage is fine. Lending above 1:1 leverage means the lender is insolvent, by definition”.

As we know, the MSTR stock has immensely benefitted from Bitcoin Adoption, beating top tech giants and the S&P 500 in the past four years.

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Bhushan Akolkar

Bhushan is a seasoned crypto writer with over eight years of experience spanning more than 10,000 contributions across multiple platforms like CoinGape, CoinSpeaker, Bitcoinist, Crypto News Flash, and others. Being a Fintech enthusiast, he loves reporting across Crypto, Blockchain, DeFi, Global Macros with a keen understanding in financial markets.   He is committed to continuous learning and stays motivated by sharing the knowledge he acquires. In his free time, Bhushan enjoys reading thriller fiction novels and occasionally explores his culinary skills. Bhushan has a bachelors degree in electronics engineering, however, his interest in finance and economics drives him to crypto and blockchain.

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