I made a post in another thread and decided that this thought deserves it's own discussion and a separate thread. Steal my idea and when 1 BTC = 1000$ start a company that provides "Bitcoin Collateralized Loans" AKA BCL's.
It is 2020 and you have some bitcoins and you want to buy a house. What is the best way to do it?
Do it like Larry Ellison
http://www.cnbc.com/id/49194482/How_Larry_Ellison_Actually_Funds_His_Lavish_Lifestyle and unlike all the shipple selling themselves into debt slavery by taking our mortgages. But use your Bitcoins instead of a stock portfolio. This is a smart way to "monetize" bitcoin fortunes for those marathon runners among bitcoiners.
However, nothing new here. Google "stock loan" or "securities based credit line" or "stock backed lending". This is actually the smart way of buying high value property as opposed to various mortgage products.
The idea is that instead of having a mortgage AKA "buying one house for yourself and two houses for the bank" you borrow money using your stock portfolio as a collateral.
A typical "stock loan" is readily available for amounts above 100k$, you pledge your portfolio as collateral in exchange for some amount of money, you keep whatever dividends your stocks brings, you pay whatever interest rate is agreed until the loan is repaid. Usually such loans are not callable by the lender but debtor can walk away from the deal at any time and stop paying any interest without repaying any capital but sacrificing the portfolio. The creditor usually hedges all risks associated with such a deal using options. Think about it, dividends are (hopefully) paying lion share of interest, you keep your stocks and get back control of them after you will have paid out the loan. If stock drops to 0 or to some other low value you can walk away from the deal at any time without any further liabilities.
I would say this is the way to buy a house for those who have 100k$ or more in liquid assets. Of course this could be combined with traditional mortgage (at lower interest rates due to large LTV) if "top up" is needed.
Just to illustrate here is a simplified example.
You buy 430k$ worth of Realty Income Corp (NYSE:O), 10000 shares, 43$ each. It pays 5% dividend. You use this portfolio to get 400k$ loan at a fixed 3% interest. You buy yourself 400k$ house outright without any further lending. eventually dividends pay off the loan and you get your stock back. Or at any time (if stock tanks big time, for example) you just walk away and keep your house and have no any debts. Alternatively, if your stock rises significantly you can settle the loan for a portion of your portfolio and walk away with the rest of it.
Essentially, this way one turns the power of compound interest from one's enemy to one's friend, offsets interest with dividend, offsets inflation with stock price appreciation, lets lender to offset risks of stock depreciation.
Now enters Bitcoin. Imagine that a few years down the road Bitcoin trades on various financial exchanges just like all other currencies, there are liquid bitcoin ETF's which are optionable and these options are rather liquid with about the same liquidity as a typical S&P 500 stock (or simply liquid Bitcoin options).
Once the above conditions are in place it is likely that Bitcoin's market cap is around 10 billion USD (I use today's dollars i.e. ignoring fiat inflation for simplicity). Let's assume that 1 BTC worth about 1000$, a round number for simplicity again.
I guess a typical deflationary Bitcoin loan in 4-8 years time or Bitcoin owners would be like the following:
You own 430 Bitcoins. You pledge it as a collateral for 400k$ at 3% interest. You buy a house outright. Every month the lender sells 0.1-1 BTC and/or you pony up some cash to pay the interest. Few years down the road your loan is paid up, you keep the house and , say, 430-N BTC that worth about the same amount of USD as your 430 BTC when you have bought the house.
So just have 1000 BTC and in a few years you will be able to use such or a similar scheme to buy yourself a house outright and keep most of your bitcoins in the process.
All you need for this to be a realistic scenario is a bunch of BTC and 1000$ exchange rate. At this point options on BTC and therefore "BTC collateralized lending" will be available.
Here is a bit of my wisdom for you: keep your bitcoins until you can buy a house (or an yacht or whatever) like that. Also note how no tax event is triggered in described above scenario. Note how one could become a tax exile for a year or so and move out his bitcoins out of a punitive taxable jurisdiction. Estate planning opportunities will be great for those who can keep their bitcoins untouched for a while.
