Blackrock iShares files for Spot BTC ETF.

[johnarb]

It might work something like this.

1. Blackrock has 2,200 Bitcoins.
2. Blackrock lends 90% of them or 1,980 Bitcoins to Grayrock. The resulting supply is now 2,200 + 1,980 == 4,180 Bitcoins.
3. Grayrock lends 90% of their 1,980 Bitcoins or 1,782 Bitcoins to Palerock. The resulting supply is now 4,180 + 1,782 == 5,962.0 Bitcoins.
4. Palerock lends 90% of their 1,782 Bitcoins or 1,603.80 Bitcoins to Whiterock. The resulting supply is now 5,962.0 + 1,603.80 == 7,565.80 Bitcoins.
5. etc.

Here is some code to see what could happen if this goes on for awhile.

perl -e 'use warnings; use strict; my $base = 2200; my $reserveRequirement = 0.10;
my $originalSupply = $base;
my $currentSupply = $base;
for (my $i = 0; $i < 1000; ++$i)
{
    $base *= (1 - $reserveRequirement);
    $currentSupply += $base;
}
my $createdOutOfThinAir = $currentSupply - $originalSupply;
print "originalSupply $originalSupply currentSupply $currentSupply createdOutOfThinAir $createdOutOfThinAir\n";
'

The output is
originalSupply 2200 currentSupply 22000 createdOutOfThinAir 19800

You didn't think that whole process, did you?

That is the most fucking bullish scenario for bitcoin price

All those borrows did not put a single down price pressure on bitcoin. Not a single $ down pressure on btc

What it did do is create 10x short position on Blackrock bitcoins

A $10k price move on btc will easily cause a mother of all short squeeze

Let me spell it out for you, when you borrow 1,000 bitcoins, you are short 1000 bitcoins

Think it through

{I have a borrow on a crypto asset and I am penny per penny, $ per $ directional short of the alt coin)

 

[NoahA]

I think you have some things mixed up with the fractional banking system.

Of course with fractional reserve banking, that is how new dollars are created... ie. lent into existence. With borrowing, nothing new gets created.

But here is how I'm looking at it. Will the bitcoin lending be on chain? For example, if Blackrock has 100k bitcoins, and lends half, will they send those and now only have 50k bitcoins? Or will they simple make a ledger entry that they are lent out, and another person makes a ledger entry that they have them on loan, but never actually having the private keys. I think this is how it works with treasuries, and nobody really knows who owns what cause they keep getting passed around.

So if Blackrock can just make a note that 50k are lent out, why don't they just make the same deal with someone else if they never have to deliver the bitcoin? Now of course if its on-chain, and they lend them out, and in exchange take collateral, what happens if that collateral goes to shit? They Blackrock wants the bitcoin back, and that person will say, sorry, don't have them to give you because maybe they gambled them away.

I honestly don't know how this works, and if all transactions are on-chain, then I got no issue. But will Blackrock be dumb enough to lend out bitcoins, and send them, and get back some type of collateral that may not be that sound, and do all this for a few % yield? Maybe they will ask for 2x of the loan... so if they lend out 1 bitcoin, about 28k now, they will ask for 56k in collateral. But once that collateral starts dropping, lets say these bonds that took down the banks just months ago, while at the same time bitcoin perhaps rapidly increases in price, then if even they try to sell this collateral, they might not recoup enough to even replace the bitcoin that was sent over.

 

[johnarb]

[QUOTE="NoahA, post: 5826787, member: 519569"So if Blackrock can just make a note that 50k are lent out, why don't they just make the same deal with someone else if they never have to deliver the bitcoin? [/QUOTE]

You're overthinking it

Keep it simple

Let's say Jaymee Demon and borrowed 1,000 bitcoins from Blackrock and had to provide $25M worth of collateral at 10% APR and have to maintain a collateral ratio of 60% or higher

Blackrock gives J. Demon no bitcoins but a paper with their logo that says you have 1,000 bitcoins

What can J. Demon possibly do with that paper?
Did the borrow of 1,000 Blackrock paper-certified bitcoins had any effect on the bitcoin price?
What happens when bitcoin goes from $30k to $40K in a week?

 

[GlobalMacro90]

I think this paper bitcoin thing is overblown.

as is well known, most equity etfs lend out their stocks. But nobody says stocks don’t go up because there are a lot of “paper stocks”. Bonds are the exact same thing. So is most assets. I don’t get the difference.

 

[johnarb]

Bitcoin is a scarce digital asset with inelastic supply

Even if bitcoin price goes to $1M each tomorrow, there will not be more bitcoins available anywhere, not even the miners can mine more than 900 bitcoins even if they try harder

In Securities Lending they have elastic supply and practically unlimited supply

Bill Hwang used stocks in low-vol stocks as collateral to buy other higher-vol stocks. He got liquidated on those low-vol stocks

But stocks (equities) are not scarce. Heck, even the circulating supply is not a limit, case in point, GME, AMC, and others

-----------

When FTX was going down, it approached the deep pocket investors, Goldman Sachs, Sequoia but none of them wanted to bail FTX out. Why not?

FTX-Alameda stole 80,000 bitcoins,, the investors knew that is an open-ended loss. If they had to buy bitcoins in the market, bitcoin could have easily shot up to over $100K/btc

Genesis had a $50B loan book but could not get a bailout. They owed bitcoins and other digital assets

BlockFi, Celsius, Voyager all were trying to get some big buyers to step in, only FTX fraudster came to buy BlockFi and Voyager in order to use their cryptos as inventory

Everyone in Wall Street TradFi seems to know the dangers of being short bitcoins but they still did it and all got blown up

The good thing about Blackrock doing all of these is that they are more capitalized. Even if bitcoin goes to $1M overnight, and if they get in trouble, they just to the money printers and print more $

TL;DR Prime Lending in bitcoins is not a problem. Let them do it. FAFO

 

[NoahA]

When FTX was going down, it approached the deep pocket investors, Goldman Sachs, Sequoia but none of them wanted to bail FTX out. Why not?

This is an excellent point. Its like even TradFi knows how unique bitcoin is. They know they can't just do some funny stuff to balance the books.

I wonder if there was anyone smart enough to realize that FTX was a joke simply because they were the only ones bidding on BlockFi and Voyager, and knowing that nobody with the right intentions would be buying these if they were actually prepared to honor the risks. Since FTX of course never worried about making anyone whole, they didn't care about what was owed to customers, but the TradFi guys perhaps had a better handle on it.

How ironic that the TradFi industry actually understands what hard money is and the difference between things that can be printed and those that can't be printed.

 

[traderjo]

I watched a video on YouTube from a bitcoin guy I like, but he also shits on stablecoins. But it goes me thinking, isn't the EuroDollar essentially a dollar that the US government doesn't print or manage? Yet this system is what actually runs the world. Dollars outside of the US is what runs trade. So how is this dollar, which is issued by foreign banks, not attacked? I'm more than likely not understanding something, but if the US doesn't like the Tether company issuing the proxy for a dollar, then why is the EuroDollar allowed to operate?

BIg diff between Euro which was a created currency and all this crypto is Euro has a backing of many govt in turn these govt have assets. Future source of income etc / what does shitcoins has behind it?

 

[traderjo]

As far as Bitcoin, I'm more or less a novice. But I've taught international finance for many years, and my Eurodollar knowledge is pretty solid. If you were to move USD deposits from Wells Fargo, USA to a bank in the Cayman Islands, you've essentially converted those USD into Eurodollars. Since there is no transparency into the size of all of these offshore USD deposits across all the banks in all the non-U.S. towns in all the world, that is why nobody knows how many Eurodollars are out there.

Two diff scenarios I guess
1) USD from US are moved to countries with NO or little FDIC type insurance
2) USD from US are moved to countries with reasonable good FDIC type insurance like UK/ AUS/ Singapore

 

[The_Krakenite]

 

[ph1l]

You didn't think that whole process, did you?

That is the most fucking bullish scenario for bitcoin price

All those borrows did not put a single down price pressure on bitcoin. Not a single $ down pressure on btc

What it did do is create 10x short position on Blackrock bitcoins

A $10k price move on btc will easily cause a mother of all short squeeze

Let me spell it out for you, when you borrow 1,000 bitcoins, you are short 1000 bitcoins

Think it through

{I have a borrow on a crypto asset and I am penny per penny, $ per $ directional short of the alt coin)

My comment didn't address the price of Bitcoin, only how lending them increases the supply without mining.

But since you mentioned it, when fractional reserve lending applies to fiat, the fiat supply increases. When people get more money, they tend to spend some of it. If nothing else changes, the price of goods and services they spend the new fiat on tends to go up. In other words, the value of each unit of fiat goes down. So the value of fiat left in people's wallets goes down.

I think you are saying if "fiat" changes to "Bitcoin" in the previous paragraph, "down" automatically changes to "up!" But then again, as EliteTrader's most outspoken "Bitcoin Bagholder," you seem to take any negative news about Bitcoin as a personal attack on you.