Is Crypto lending, currently, a poor investment decision?

D

Daal

I'm referring to lending BTC or ETH, not lending shitcoins, shitcoins might be a different situation but I see some sites like BlockFi offering 3% a year for BTC pledgers or 5.25% for ETH. It sounds great, you can generate yield on your otherwise static crypto. But lets breakdown this decision:
If crypto is the future, BTC and ETH are probably going to 5-10x from here. If crypto is not the future and its all a bubble, they will drop 80-100%.

Companies like BlockFi have credit risk, no matter how great their pitch is, there are always regulatory/rogue employee/financial mistakes/software bugs/hackers, etc. So if crypto is the future, you might give up a 500-1000% return because they went out of business and now you lost your crypto or your stuck in a long bankruptcy process. All of that in order to get a tiny single digit return. If crypto is not the future, well, you will lose all your money anyway and whatever payment they are making will be in worthless currency.

To me this sounds like a US investor being bullish in technology in the 1990's, buying 30 top technology companies stocks, asking for the share certificates and them keeping these certificates in custody with a random technology company that will give the person a few percent to have these certificates and use them as collateral for lending. He is risking his ENTIRE thesis, that could yield him gains of a lifetime, all of that in order to pick up a few nickels in front of a steamroller. Imagine custoding your technology shares, in the scenario, with Pets.com. This looks like reaching for yield at its finest and hence its a horrible decision

Thoughts?
 
MrMuppet said:
I don't quite understand...you lend 1BTC and you get 1BTC back.
How does that invalidate your thesis?
It's a win/win.
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If BlockFi goes out of business due a number of reasons, you wont get 1BTC back
 
If I have $100,000 sitting on the bank earning 0% and the Fed is targeting 2% inflation, I'm losing 2% a year. Then I decide to lend to ABC company at 5%. I'm risking IT ALL (If ABC goes bk) in order to protect my asset from the Fed. That is a defensible decision

But if I have $100,000 worth of BTC that is already protected against money printing and I'm expecting if to go up 5x and THEN I use it to lend to a company like BlockFI, that is just lunacy. I'm risking it all PLUS the 5x appreciation in order to make a few bucks. That's just crazy
 
Just get a coin you can stake. No risk of loss that way.

I'd much rather loan out crypto to market makers on the established exchanges
 
MrMuppet said:
then spread out your risk
More...
that doesnt solve the problem because even if ONE of these companies go bk, you give up so much in terms of expected value that your entire effort was a negative expected value proposition
 
look, dude. I already told you many times you need to get into the rabbit hole and do your due diligence on these companies and on the entire ecosystem.

You cannot come up to an internet forum were one half of members doesn't know the difference between ETH and BTC and the other half condemns crypto as the source of all evil and ask for investment advice...or expect somebody to throw free lunch at you.

You are on your own here. There is no government body to hold your hand, no rating agency to do your work and nobody you can sue in case you lose your money due to a stupid investment decision.

By the way I'm also not quite sure if you really know how to calculate expected value...if you get 10% yield p.a. how high must the probability of default be to make it a break even bet?

Take all the defaulted lending facilities and divide that number by all lending facilities that exist to get a rough estimate of your default risk and compare that to your break even default probability.
I'm pretty sure you haven't done that, right?

Just like you didn't research all the hacks and the fraud and the bankruptcies to learn what really happened. You've read a press release or perhaps a blog post or news article, but you don't know...and that makes you uncomfortable.

You want that juicy yield, don't you? But you want the predictability and the safety of treasury bonds...and that's what you don't get. Now you come up here with doubtful questions and ask for someone to wash your sorrows away...and that's what you also won't get.

Do your homework and make a decision.
 
Doesn't seem to make much sense to lend at 3-5% per annum when the underlying asset routinely moves that much in a day. Better to focus 100% on getting your timing and position sizing right. That includes the choice of which token(s) to hold, which would certainly be impacted by giving up your liquidity for a year.
 
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