I cannot understand who is selling Bitcoin to me. No seriously, I literally have no idea why anyone would sell their Bitcoin to me.
Bitcoin is an asset which has so far appreciated about +200% a year on average, every year of its existence. Why would anyone sell such an asset? An obvious answer may be “to take profits” or “need the cash to buy something” but people forget there is a way one can use the increased value of one’s Bitcoin without having to sell it. It is known as “The Billionaire’s approach”…
Warren Buffett’s policy when it comes to investing is “We buy a company we like, our holding period is forever“. His Coca-Cola stock is a classic example, did he ever sell his Coca-Cola stock to buy a private jet? No. Did he buy a private jet? Yes. How? By borrowing against his appreciating assets to pay for it.
If you believe Bitcoin will keep increasing at +200% a year forever then the most stupid thing you can do is sell it. What you should do instead is take out loans of fiat cash collateralized with the Bitcoin and use those loans to buy what you really want (a car, a vacation, a house, even more Bitcoin etc). As long as Bitcoin keeps appreciating faster than the interest on the loans you never need to pay the loans off and your debt-to-equity ratio will keep going down.
This is also tax-efficient since selling your assets (crypto, stocks etc) is a taxable event (capital gains tax) but borrowing against them is not.
You want to live your life borrowing millions of $ in cash to pay for things, keep the Bitcoin, never pay taxes, and never have to pay the loans off and finally die owing money!
This is where the crypto platform Nexo comes in (think of it as almost the world’s first Crypto Bank). Where you can deposit your crypto/stablecoins and take out a credit line using your assets as collateral.
If you deposit crypto (e.g. Bitcoin or Ether) into your NEXO account then you can earn up to 8% APY interest on that crypto. Similarly stablecoins and fiat (GBP and EUR) can earn up to 12% APY savings interest rate. These are much higher interest rates than are accessible at any traditional bank and allow you to compound your wealth rapidly. Compound interest is well known to be the “secret of the rich”. For example, depositing $10k worth of BTC into Nexo and compounding that at 8% per year would yield $31k after 10 years, and that is assuming BTC does not even appreciate in value during that time!
However much more likely is that Bitcoin will continue to appreciate (on average) every year which is where the other side of NEXO comes in. Nexo allows you to take out loans (in either fiat or stablecoins) against your crypto/stablecoins deposit for an interest rate as low as 5.9%. Thus if you take out a loan using your Bitcoin as collateral, as long as your Bitcoin appreciates at a rate greater than 5.9% per year (highly likely) then you will never have to pay off this loan and in fact can keep on borrowing against your Bitcoin indefinitely.
Let’s see an example. Let’s say you deposit 1 BTC in your NEXO account (currently worth ~$50k) and you stake 10% ($5k) in NEXO tokens in order to unlock the platinum loyalty level allowing you to borrow at 5.9% (their lowest interest rate):
Nexo allows a credit line for a maximum LTV (Loan-to-value) of 50% on crypto. Thus if you have $50k worth of Bitcoin you can take out a loan for a maximum $25k.
Let’s say you decide to take out a loan against your Bitcoin of $10k (maybe to pay for a vacation that year):
Your LTV is essentially your debt-to-equity ratio. As the value of your collateral (Bitcoin) increases, your LTV will fall. If your collateral decreases though and your LTV rises over 50% then your Bitcoin will start to be automatically liquidated to cover your costs unless your collateral is topped up. Otherwise though there are no fixed set payments required on the loan and no set maturity on it either.
Let’s say after 1 year that Bitcoin appreciates by 50% (conservative by historical measures). Also let’s say for simplicity you do not earn any interest on the Bitcoin not being used for collateral of the initial $10k loan (in reality you will 8% interest on that). Your collateral will now be worth $75k and the loan outstanding will be $10,560 ($10k*(1+5.6%)):
Thus you decide to take out another $10k loan:
Another year goes by; let’s say Bitcoin appreciates this year by 100% (again not unreasonable based on Bitcoin’s history). Your account now looks like this:
You decide now to take out another loan this time for $50k, since after all you are still under-utilizing your maximum LTV of 50%:
Year 3…Bitcoin only appreciates by 25% this year. Your credit line however still only increases by 5.9%, hence your LTV still falls:
As you can see at no point have we actually paid off any outstanding amount of the loans. We can thus continue doing this forever and live off the value of our Bitcoin without ever having to sell the Bitcoin, pay taxes on it, or pay back the loans against it.
Is Nexo safe?
I highly recommend Nexo even if you don’t want to take out a loan and only use their savings feature to earn interest on your crypto/stablecoins/fiat. Savings interest rates in the range of 8%-12% are like water in the Sahara right now given the average savings rate at a traditional bank current account is only about ~0.04%.
You may be thinking this sounds too good to be true, nothing is free in life, surely there is some risk involved?! Nexo was founded only 3 years ago but they have been growing rapidly in the space ever since and they have extremely long term plans for the business. Their current high interest rates are simply a function of supply and demand. As you would expect though, deposits are not FDIC insured but this should not put you off. I’m not gonna lie to you, Nexo’s business model is extremely safe even in the volatile world of crypto. They only give out loans which are collateralized by at least double the loan amount (max LTV of 50%) and if the LTV starts to rise above 50% then they automatically start liquidating the collateral.
Furthermore their business model is extremely profitable given the very high demand in the space for access to liquidity without HODLers having to sell their assets. And this is only likely to increase over time as the crypto space gains more wider adoption. Their platform is slick and professional, something you don’t see often in this space:
Also did I mention they distribute 30% of their profits every year back to Nexo token holders in the form of dividends?
However the first step in all of this is acquiring some Bitcoin to use as an asset for generational wealth. Today — luckily — you can buy Bitcoin on a variety of exchanges but what happens when it is almost impossible to buy Bitcoin because no one will sell it to you?!
Who is going to sell you Bitcoin?
Miners? Bitcoin miners currently create ~900 fresh BTC every day and most almost immediately sell this at market price in order to cover their operating costs and make a very marginal profit. This constant sell pressure of 900 BTC per day is only about 1% of Bitcoin trading volume today so makes negligible impact on price but historically when the amount of Bitcoin issued was higher and the market was thinner it did make a difference of course. Miners selling their Bitcoin in those early days was necessary to bootstrap the network and distribute the Bitcoin but what happens when the miners stop selling their Bitcoin? As mining companies go public (e.g. Marathon recently) they will no longer need to sell Bitcoin to raise cash, they can simply issue equity and debt to cover their expenses. No one goes into the business of mining believing Bitcoin will go down in price and eventually fail so why else would they ever sell it?! In fact, once they go public and have access to cheap capital they will probably start buying it instead! Creating a complete reverse polarity in the Bitcoin market!
Institutional Investors? It is no secret that Institutions this past year have scoffed up an enormous amount of Bitcoin. One “worry” that is often touted is that eventually these Institutions will start selling their Bitcoin for profit and drive the price back down. I don’t think this is going to happen. Grayscale trust for example — probably the largest Institutional buyer right now — actually has no mechanism even for ever selling the Bitcoin. When you buy into Grayscale what you are actually buying is GBTC issued shares which are backed by Bitcoin they purchase through the trust. The shares can be sold and so the share prices can go down, but the underlying Bitcoin itself can NEVER be sold as per the charter!
Likewise the companies which have bought Bitcoin as treasury reserve assets (Microstrategy, Tesla etc) have a time horizon on their investment of 100+ years. They will simply never sell it to you.
HODLers? You expect HODLers like myself to sell you their Bitcoin?! Forget it! These are guys that held through the crypto winter, the bear market of 2018 and the global markets crash of 2020 without selling a single sat. In fact they just bought more. They are the holders of last resort, refusing the sell under any circumstances. Bitcoin to them is more valuable than air, it is their most prized possession and they will not be parted from it. The true definition of diamond hands.
Reality is Bitcoin is being taken off exchanges at an accelerated rate, hence the recent rapid rise in the price of Bitcoin. Buy it and hodl it (in Nexo) while you can. At some point in the (very) near future you may not be able to even buy it anymore!