It is necessaryA subsidiary of Stone Ridge, which offers bitcoin-backed loans, is preparing to expand its offering through flotation financing, according to a 2024 report. Investor letter.
This letter refutes common objections to Bitcoin (Bitcoin) instrument, showing that it can generate cash flow through sales and act as collateral for fiat loans.
Floatation is a key concept in insurance and asset management. It represents investable capital that comes from premium payments or reserves. Stone Ridge's Longtail Re has experience originating billions of dollars in asset-backed loans, though none backed by Bitcoin.
Warren Buffett's Berkshire Hathaway is famous for using his float as leverage. The company increased its free float from $114 billion in 2017 to $164 billion by December 31, 2022.
As a result, floating consolidation in Bitcoin loans could revolutionize the market and provide Bitcoin holders with a source of liquidity.
Stone Ridge envisions a positive feedback loop of increasing utility for Bitcoin assets by keeping them off the market, accelerating the depreciation of fiat currencies and further increasing the value of Bitcoin.
Digital marathon Consultant Sam Callahan called The move is significant, as it opens up “one of the largest pools of investable capital in the entire financial system” in the Bitcoin ecosystem.
He also shares the same view of the report that more efficient bitcoin-backed lending would reduce costs and prevent the sale of bitcoins for liquidity. This increases the price by increasing scarcity and demand, attracting more institutions and accelerating its adoption.
Competitor equity margin loans
Stone Ridge refers to Bitcoin-backed loans as HODL loans, which compete with traditional equity margin loans in terms of risk profile and cost efficiency.
While the market has historically viewed Bitcoin as volatile, the report argues that its risk metrics closely match those of common US stocks. This equivalent opens the door for more competitive pricing in Bitcoin-backed loan markets.
Currently, Bitcoin-backed loans are at much higher interest rates than traditional equity margin loans. However, Stone Ridge anticipates that competitive forces will close the gap and bring bitcoin-backed loan prices closer to those of Regulation T margin loans in the near future.
