Does this Rule Apply to Institutional Investors?

[mvdheuvel1983]

There's always a popular non-financial crypto advice to not take out a loan to invest in Bitcoin or go all in. These are useful and crucial advice. However, I am starting to think that it doesn't apply to everyone in the Bitcoin ecosystem particularly institutional investors.

This is stale news but I have to bring it back to buttress my point. This JUN 6 2022 headline of this CNBC report reads "Microstrategy takes on $2.4 billion in debt to buy bitcoin despite recent volatility"

This company actually took out a loan to buy Bitcoin. They are one of the top companies when it comes to Bitcoin holdings. I wonder what Michael Saylor was thinking. Is there a possibility that the warning to not take out a loan to buy Bitcoin doesn't apply to institutional investors being that they have been performing well?

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[mk4]

The "don't loan money to buy bitcoin" thing is really geared towards like 95% of people — which are retail investors. In the first place — if you're an institutional investor(or at the very least, a very savvy retail investor), you wouldn't be asking for advice online.

If you truly know what you're doing, then by all means go get a loan for investing. But then again, a huge majority of people actually don't know what they're doing but instead just think they do because of ignorance.

[CryptoHeadlineNews]

This company actually took out a loan to buy Bitcoin. They are one of the top companies when it comes to Bitcoin holdings. I wonder what Michael Saylor was thinking. Is there a possibility that the warning to not take out a loan to buy Bitcoin doesn't apply to institutional investors being that they have been performing well?

That's a beautiful question you just asked @ O.P, and I'm going to give you a logical answer regarding this, because if you could make some research, you will get to understand that "Microstrategy" as a company has a net worth of over $3.77 billion dollars, of which taking a loan of $2.4 Billion was a risk they could afford, knowing truly that with such huge sum, they could make massive profit with Bitcoin investment, which is quite different from what we always advocate here on this forum for people not to take loans they can't afford to pay back if eventually the price of Bitcoin fall and yet it's already due time to pay back your loan. As such could be the worst period any individual could face, as load keeps accumulating daily.

So on the contrary, those International investors take loans simply because they have an asset to pay back the loans if things don't go as plan.

[Merit.s]

You are talking about an institution like MicroStrategy that already has an asset which he can use to generate funds that he will use to payback the loan. Don't forget that Saylor has a plan on what he is doing,I guess he did this due to the price of bitcoin that will hit the bull run 2025. In the forum,you are advised not to take loan to invest in bitcon due to its volatile nature,so that when the loan time has elapsed,without any profit yet,you might end up selling cheaper than what you bought. This will bring more problem to you because you will need to pay up the loan. Someone with an asset or a business can take to loan to pump the business,because he has what he can rely on to payback the loan. Remember so many businesses and investment needs loan to survive,especially when it is a big firm,you will have the banks on your tip.

[Ndabagi01]

There's always a popular non-financial crypto advice to not take out a loan to invest in Bitcoin or go all in. These are useful and crucial advice. However, I am starting to think that it doesn't apply to everyone in the Bitcoin ecosystem particularly institutional investors.

These are big companies, and I doubt you know enough about finance to advise them on what to do and what not to do when putting their money in a risky investment. To take such a crucial step they must have weighed the options in all directions and chosen what will benefit them while also having a backup plan in case the risk they are taking does not benefit them. The advice to not take out a loan to invest is general advice for everyone, but it is specifically for those with no financial knowledge who want to make an investment.

[bittraffic]

It's true it doesn't apply to bit institutions because if they declare it's from a loan, it means nontaxable. Now I'm no expert on this but I once heard this from a discussion that I have attended before which they normally do so that they can avoid tax.

The difference is that if an individual asks loan from someone to invest in BTC, then he is liable to pay the loanshark with high interest.

[serveria.com]

There's always a popular non-financial crypto advice to not take out a loan to invest in Bitcoin or go all in. These are useful and crucial advice. However, I am starting to think that it doesn't apply to everyone in the Bitcoin ecosystem particularly institutional investors.

This is stale news but I have to bring it back to buttress my point. This JUN 6 2022 headline of this CNBC report reads "Microstrategy takes on $2.4 billion in debt to buy bitcoin despite recent volatility"

This company actually took out a loan to buy Bitcoin. They are one of the top companies when it comes to Bitcoin holdings. I wonder what Michael Saylor was thinking. Is there a possibility that the warning to not take out a loan to buy Bitcoin doesn't apply to institutional investors being that they have been performing well?

You are mixing apples and oranges here. For retails investors, one the most essential factors is timing. When you go all in makes a difference for you but doesn't make any difference for Michael Saylor and other institutional investors. It simply doesn't matter if they buy at $20k or $70k as it's a long-term investment and they're not planning to sell/cash out in the foreseeable future. 

[Dr.Bitcoin_Strange]

There's always a popular non-financial crypto advice to not take out a loan to invest in Bitcoin or go all in. These are useful and crucial advice. However, I am starting to think that it doesn't apply to everyone in the Bitcoin ecosystem particularly institutional investors.

This is stale news but I have to bring it back to buttress my point. This JUN 6 2022 headline of this CNBC report reads "Microstrategy takes on $2.4 billion in debt to buy bitcoin despite recent volatility"

This company actually took out a loan to buy Bitcoin. They are one of the top companies when it comes to Bitcoin holdings. I wonder what Michael Saylor was thinking. Is there a possibility that the warning to not take out a loan to buy Bitcoin doesn't apply to institutional investors being that they have been performing well?

Well, just as the first colleague stated that the rule is mostly for retail investors, I would want to add that institutional investment is not just based on one person's agreement before taking out a loan to invest; it's usually based on the agreement of all shareholders of the company, which even has a well-mapped-out strategy to repay the loan.

Also, before some companies take out loans, they consider what they already have, just like in the example of @CryptoHeadlineNews.

So there is basically a higher possibility that a company can easily repay their loan without stress, while retail investors can have some little issues to repay when the loan is overdue. It's not as if a company cannot pass through challenges in loan repayment just as an individual would, but it seems they have a better chance than just retail investors.

A company can take out a loan to invest and encounter losses, but they still have their company capital to cover their loan, whereas an individual can encounter losses and may not have anything to cover the loan. As such, they can sell off some properties, like houses, cars, or other things that belong to them, just to repay the loan, mean while those properties they are selling is still vital to them.

Another thing I want to point out is that in business, the higher your investment, the higher your profit. Since Microstrategy invested $2.4 billion in Bitcoin, if Bitcoin just increased by 20%, they would have a profit of $560 million, which is huge, and they could use 5% of it to cover the loan interest. If the Bitcoin price also grows by more than 40%, it means more profit, and you can't compare that to a retail investor that can just take out a loan of $500–$20,000 and make a small profit and still cover loan interest from it, so they need a higher price to make enough profits.

[panganib999]

I think the phrase and the advice was inflated to such a degree that it is often antagonized if you were to take out a loan to buy bitcoin, I would admit I myself did this a couple times in the past for people who wants to take loans to buy cryptocurrencies.

I think the advice should be, do not go beyond your means whenever you invest in bitcoin. Taking out a loan with the full confidence and guarantee that you would be able to pay it back even if the investment goes under is something that you should take into account before taking out debts. Microstrategy surely knows about this, they may have even put up their bitcoin investments as a form of collateral just in case they couldn't pay the bank. So, it's fine. Institutional investors as a matter of fact do this all the time, that's why they remain rich. However, for the common joe this wouldn't work most of the time. The money we earn is directly related to our capacity to work so the moment we got laid off or fired, we're fucked.

[DiMarxist]

You can use a soft loan to buy bitcoin. Soft loan in the sense that, there is no collateral and no interest rate but if there is an interest rate, it would be very minimal to pay back. Apart from that, and if the lender will collect collateral and with interest, there is no need to borrow and purchase bitcoin because the risk there is high.
You can see the market these few days. Bitcoin was 30k$ and suddenly the price just come down too 27$k. And if you purchase it at the time of 30k and now that it is 27k. What will you do about? What will be running in your mind if you purchase it with borrowed money?
Institutional investors can do that but with caution. We have see companies have fold up base on the volatility of bitcoin.

Don't borrow to purchase bitcoin

[Obari]

I wonder what Michael Saylor was thinking. Is there a possibility that the warning to not take out a loan to buy Bitcoin doesn't apply to institutional investors being that they have been performing well?

Nothing is certain in cryptocurrency and being an institutional investor doesn't gauranty any profit or safety in the industry.
But on the long run I always imagined owning 1 Bitcoin because I've always believed that if I own atleast 1bitcoin, I will be able to sleep comfortably with the hopes that I might never get liquidated in as much as the price of Bitcoin never falls to zero, maybe this was exactly what Michael saylor thought and pictured the future and I guess this should be the only hope of borrowing to invest in Bitcoin because rules must be broken.

[hannahB4]

While I will partially agree with the institution taking a loan for bitcoin investment is this,  they are running a business with a level of profit they aware of, For this loan they take, they would have looked into it if it will be financially possible to pay it back within the stipulated time because of the risk associated with it but for an individual that you are based on Salary and the loan giving to you which I know that it can pass a year, how do you plan to pay back or you will sell back with the coin you bought.

[The Cryptovator]

Investment rules are subjective and vary from person to person, including institutional investors who may have multiple sources of income. Even if they take out a loan to buy Bitcoin, they are capable of regularly repaying the loan to the bank regardless of whether Bitcoin's value increases or decreases. Generally, those with larger amounts of money are able to take greater risks, while those with smaller amounts can only take smaller risks. These are simple but important principles to keep in mind.

[hatshepsut93]

I wonder what Michael Saylor was thinking. Is there a possibility that the warning to not take out a loan to buy Bitcoin doesn't apply to institutional investors being that they have been performing well?

MicroStrategy can go bankrupt tomorrow and Saylor will still be a rich man. Taking a loan to invest in something is very similar to investing with high leverage. And trading with high leverage is a bad idea.

I don't see why would things be different for institutional investors. Just like individuals, they need to manage risks. Getting a loan to buy a highly volatile asset is like a multiplier on the downside of the asset.

[Nwada001]

Microstrategy took a loan to buy Bitcoin, and the loan they took is not to be paid back using the return on investment.
Investment advice is against taking a loan to invest in coins and hoping to pay it back using the investments.
Microstrategy, which I believe is a company made up of millionaires who are pros in their respective fields, can easily be paid back by selling the company's shares.

The last time Michael Saylor tweeted about their loan being fully paid off, there was nothing like they sold some part of the purchased Bitcoin in order to cover up those loans.

They probably have other plans mapped out for those loans to be paid with, and using those purchased Bitcoins was never one of them. They are real investors who know the risks involved in making such a big mistake as hoping to pay back loans using investment returns.

I don't see why would things be different for institutional investors. Just like individuals, they need to manage risks. Getting a loan to buy a highly volatile asset is like a multiplier on the downside of the asset.

because they have a better chance of repayment than an individual investor. Like I said, they might have a mapped-out plan to raise the repayment funds from different sources. An individual investor might solely depend on the investment profit to pay back that loan, which will put him or her at greater risk of being a loan defaulter.

[Zaguru12]

Microstrategy took a loan to buy Bitcoin, and the loan they took is not to be paid back using the return on investment. 

Investment advice is against taking a loan to invest in coins and hoping to pay it back using the investments.
Microstrategy, which I believe is a company made up of millionaires who are pros in their respective fields, can easily be paid back by selling the company's shares. 
The last time Michael Saylor tweeted about their loan being fully paid off, there was nothing like they sold some part of the purchased Bitcoin in order to cover up those loans. 

They probably have other plans mapped out for those loans to be paid with, and using those purchased Bitcoins was never one of them. 
They are real investors who know the risks involved in making such a big mistake as hoping to pay back loans using investment returns. 

This is one of key points why it is not advice for an individual to take loan to invest in a volatile asset like the bitcoin. The mode of repayment is mostly the issue, most of these individual investors look at the profit that could be gain to pay out their loan which actually creates panic in holding. Someone that is not calm can’t hodl for long and might sell at a loss price during a bearish period if the loan repay date is due.

But if an individual also has an outside income of repaying the Loan without it affecting is financing then it is slightly advisable to take loans. This could happen when an investor sees the market down and wants to capitalize on it but the money is expecting to invest in it might come late then he could just take a loan and repay with the initial planned fund.

[jossiel]

Maybe.

Since they're corporation, they've got other assets that can easily pay out the debt that they've taken. They won't take a debt if they can't pay that win or lose with the purpose of the loan.

While an individual, we may still take a loan and invest it into bitcoin if we want to. But we've seen a lot of people failed with this strategy and if it you think that you'll be able to pay the loan covering it with other source of your income or by your other assets, then take the risk if you want to.

As for me, I wouldn't still do it.

[AmoreJaz]

Maybe.

Since they're corporation, they've got other assets that can easily pay out the debt that they've taken. They won't take a debt if they can't pay that win or lose with the purpose of the loan.

While an individual, we may still take a loan and invest it into bitcoin if we want to. But we've seen a lot of people failed with this strategy and if it you think that you'll be able to pay the loan covering it with other source of your income or by your other assets, then take the risk if you want to.

As for me, I wouldn't still do it.

that is true, they have the courage to take a multi-million dollar loan because they have other assets to fall back into. however, if you are just a regular individual with regular income, hard to stake your hard-earned money on this market.
the rule also applies to institutional investors. but they have more leeway as they have more assets under their name. and maybe profitable assets so they don't worry about waiting that long like with btc market.

[dothebeats]

When institutional investors do this, it feels just right because they have already proven time and again that their business decisions are sound, because how can they make money anyway if their strategies don't work? A lot of them have taken larger loans and debts to make more money and it's always working out (well, almost). The governments are even ready to bail them when worse comes to worst. I think, in a way they are exempted to this general rule simply because they make money, and lots of money at that with their loans and debts.

[thecodebear]

Yes, not taking out money to invest in Bitcoin (or anything) is always a good piece of advice to follow.

Microstrategy is a company, which is a very different situation. Companies take out loans to grow their business all the time. A company taking out a loan and an individual taking out a loan are two very different things. For example a company can sell some stock to get more money, you can't just sell stock in yourself to raise money. But a company can only do this if they know their cash flow is gonna be able to handle the loan if problems occur in the market.

Microstrategy borrowed some money on loans, but a lot of the money they used was cash they already had, or money from stock sales which means its cash they raised and not loans, or loans at very low interest rates which they get because they are a big company.