Bitcoin Carry Trade

[Raystonn]

Bouncing off the exponential trend line, this is a great time to enter into a carry trade with just about any fiat currency.  Borrow the fiat, buy Bitcoin.  Even if you bought at the peak of every rally, you'd never see a loss year over year.

I don't see how this can be any more risky than the Yen carry trade turned out.

[1715261806]

1715261806

[Brewins]

take loans is always risky, you'll need to make the payments month after month, if you don't lose your primary income. If that happens, you'll need to sell bitcoins for fiat at wharever rate is the market.

Unless you can gain at least loan interests + withdraw taxes every month by trading, I think its more profitable and safer just buy bitcoins with the money destinated to pay the loan, month after month.

And bitcoin already stagnated for around 18 months in the early days, so nothing is warranted.

[Raystonn]

Carry trades always have risk.  But these are the kinds of trades large investors undertake.  I'm not talking about an individual taking out a personal loan.  I'm talking about a business taking out a loan in the currency with the lowest interest rate, then using half of it to buy Bitcoin and the other half to make monthly payments.

[peeveepee]

Carry trades always have risk.  But these are the kinds of trades large investors undertake.  I'm not talking about an individual taking out a personal loan.  I'm talking about a business taking out a loan in the currency with the lowest interest rate, then using half of it to buy Bitcoin and the other half to make monthly payments.

Leverage buyout firms do it because the profit from the takeover firm can cover the interest rate of the loan they are paying.

Bitcoin has no "profit" and the future price is not certain.

[Raystonn]

No carry trade is certain.  Look at what happened with Japan.  Regardless, large investors will do this.
Let's take an example.  Take out a USD$1,000,000 loan at 4.5% interest, amortized over 30 years.  Use half the proceeds to buy Bitcoin.  Place the other half in CDs or some other guaranteed USD-denominated investment.  Use the latter to make the monthly loan payments.  It will last 8 years without touching the Bitcoin investment.  What do you think a $500,000 investment in Bitcoin can do in 8 years?

[theonewhowaskazu]

Actually, if you're trusting enough to buy Bitcoins through an exchange, you may as well just park your USD there rather than in a CD. With a HELOC you can easily keep the creditors at bay for an infinite period (while even potentially paying down principal) by lending the USD out on Bitfinex, and still have lots of USD left over to buy BTC with.

Okay, fine, I cheated a little when I implied that it was the same credit risk as simply buying Bitcoins, but still the general point still stands.

[Raystonn]

The risk of keeping the fiat on the exchange is unneeded.  The fiat is there to give you 8 years without any pressure to sell your Bitcoins.  Keeping the fiat on the exchange would add additional risk that could mean having to liquidate your Bitcoin position to make a monthly payment.  Keep the fiat and the Bitcoins off exchanges.

[theonewhowaskazu]

The risk of keeping the fiat on the exchange is unneeded.  The fiat is there to give you 8 years without any pressure to sell your Bitcoins.  Keeping the fiat on the exchange would add additional risk that could mean having to liquidate your Bitcoin position to make a monthly payment.  Keep the fiat and the Bitcoins off exchanges.

You could get "short squeezed" out of the dollar in 8 years time. Maybe.