[00:00:01] Merry Christmas guys. This has been an awesome year and today I just wanted to share a really cool project that I worked on with Brains. So we put together a number of audiobooks and we're actually still working on them. We have a few more to come, but they wanted to release this for Christmas. It is bitcoin, the ultimate collateral. This is a seriously good book that dives deep into what I've always considered a really underappreciated and insanely valuable part of the bitcoin story.
[00:00:31] So hopefully this will be really valuable in your Christmas and New Year's traveling. And I just wanted to thank everybody who listens to the show, everybody that shares and supports this and what I do. Everybody who zaps on Nostr and stream sats on Fountain to the audio knots. You guys are amazing and it's so awesome to have you guys available and to just to hang out with and to share thoughts and ideas and building things together.
[00:01:01] I genuinely love doing this and it would not be possible without all of you.
[00:01:07] And also our amazing sponsors.
[00:01:10] Seriously if you check them out, use the links and give them a shout out because they also like this wouldn't make if this didn't make any money I would not have the option for choosing really good companies to sponsor with ones that I am insanely picky about and it would be hard if not impossible to do any of this.
[00:01:31] So check out and and thank our sponsors. Ledin IO they do bitcoin backed loans. They're great company, great service. The Pub Key app.
[00:01:41] They have built so many cool tools to fix the web to the HRF and their never ending battle for and fight for freedom around the world and for sharing the tools and the stories of how we can actually win.
[00:01:56] And Chroma for helping me get my light health right which is. It's hard for me to overthink them for that because that has made a huge deal.
[00:02:05] I've got special links and discount codes to check all of them out. Give them a shout on social too if you appreciate their support and this show.
[00:02:15] Lastly, a huge thank you to Braiins and the incredible work that they have done literally relentlessly in bitcoin and for all the essential works that they've put together for you guys. They literally have a small collection of books now that could take anybody from knowing almost nothing to having an insanely strong foundation and being a real bitcoiner. So share this out. Thank you for making this all possible and and most importantly have a very merry Christmas. So without further ado, let's dive into our audiobook and it's titled Bitcoin the Ultimate Collateral, written by Martin Conner.
[00:02:59] Never sell your Bitcoin Live off it.
[00:03:03] Read to you by Guy Swan of the Bitcoin Audible Podcast.
[00:03:08] This book is published by Braiins, a global leader in bitcoin mining innovation since 2010. Delivering cutting edge software and hardware products worldwide, the Braiins team is passionate about bitcoin education and adoption, making books free to
[email protected] that's B R A I I N S.com books or purchase on Amazon.
[00:03:37] Forward Building tools to maximize Bitcoin's potential the Past, Present and Future of Collateralization A double forward from two Bitcoin builders.
[00:03:52] You'll spend 40,000 hours of your life trying to make money. It's worthwhile to spend a hundred hours figuring out how to keep it.
[00:04:00] Michael Saylor the braiins way since 2010 never sell collateralize by Elie Nagar of Braiins as the CEO of Braiins, I have had the unique opportunity of leading our company through the rapidly evolving landscape of bitcoin mining and everything in between.
[00:04:23] At Braiins, we have always been driven by a singular vision to harness the transformative potential of Bitcoin, not just as the highest form of money, but as the ultimate form of collateral.
[00:04:35] Since our founding in 2010, 100% of our revenues have been in Bitcoin, and we financed all our growth and operations by selling as little of it as possible.
[00:04:47] This strategy let us keep our Bitcoin holdings while leveraging them driving the innovation that has positioned Braiins as a leader in the industry.
[00:04:56] We've seen firsthand how the ultimate collateral drives real results and gives us financial freedom.
[00:05:03] Various features of Bitcoin its decentralized nature, finite supply and inherent security uniquely make it the most resilient and trustless form of collateral. Its liquidity and global acceptance allow it to be instantly converted into cash without geographical constraints or the risk associated with fiat collateral.
[00:05:25] Bitcoin is not just another option for collateral. It is in many ways the superior choice, offering a level of stability and security unmatched by any other asset class.
[00:05:39] We have years of experience to back this up.
[00:05:42] At Braiins, our experience using Bitcoin as collateral has been overwhelmingly positive. By leveraging Bitcoin to secure financing, we have been able to expand our operations and innovate without the need to liquidate our holdings.
[00:05:58] This strategy lets us maintain the value of our assets while still benefiting from Bitcoin's long term appreciation.
[00:06:05] We have been leveraging our stack for years. We raised significant funds to expand into our hardware division, and the results of that are paying tremendous dividends. Our many miners, the BMM100 and BMM101 are just the beginning. It is with this deep understanding of Bitcoin's potential that we have decided to invest in Firefish, who pioneers the use of Bitcoin as collateral for loans. Their platform, which enables individuals and businesses to unlock the value of their Bitcoin without having to sell, represents a significant advancement in the financial use of Bitcoin.
[00:06:43] Bitcoin is not just the best option, but the only option for collateral in the modern financial era. I am confident that the knowledge shared in these pages will be invaluable to anyone interested in the future of finance. As we continue to innovate and push the boundaries of Bitcoin, we look forward to the exciting opportunities that lie ahead with Firefish. As a key partner at Braiins, our mission is to provide miners with tools to be as efficient as possible in in such a ruthless industry, we believe the ability to leverage your Bitcoin, not sell it, will be a key tool going forward.
[00:07:23] Together, we will help shape the future of finance, one that is built on the soundest collateral known to mankind, Bitcoin.
[00:07:33] Onward fellow bitcoiners. Elly Nagar, CEO of Braiins, Houston, Texas August 18, 2024 Block height 8507346 Collateralize, build, repeat By Martin Matejka of Firefish Firefish grew from multiple different places. Before Firefish was created, I worked at a trading desk dealing in energy and commodities. We used all sorts of collateral to help process our large transactions and trades cash, stocks, exotic assets, securities, gas and even carbon allowances.
[00:08:16] Then I thought, why not use Bitcoin as collateral?
[00:08:21] Collateralization is widely adopted in traditional finance. It was missing a piece. Bitcoin.
[00:08:28] Our goal was to ensure you never had to sell your Bitcoin that you could live off of it. It took a long time for me to get there though. The first few years of my Bitcoin journey, I, like many others, thought it was a cool technology and just an investment.
[00:08:44] Looking back, it's definitely still a cool technology.
[00:08:47] But it's so much more than an investment.
[00:08:50] It's a way of thinking.
[00:08:52] I know firsthand whenever you send money, especially Bitcoin, away from your balance sheet, you're exposed to counterparty risk.
[00:09:00] We thought, why, though Bitcoin is programmable money, we can program it. And we did. That's why we created a non custodial lending protocol fine tuned for Bitcoin. And thus Firefish was born.
[00:09:16] We are proud to offer bitcoiners and Bitcoin companies the ability to not only sit on their Bitcoin until it moons while also extracting the inherent value of their Bitcoin without needing to sell it. There is no exit strategy with Bitcoin, just with fiat. Rich people never sell their assets and neither should Bitcoiners.
[00:09:38] Over the coming years, we plan to help bitcoiners truly take the position of short fiat long Bitcoin. Through everyday payments, we just might expand into Bitcoin backed credit cards, lightning integration and even Bitcoin backed securities.
[00:09:54] At Firefish we are short fiat currency. That's why we think your liabilities should add up in fiat backed by real money. Bitcoin.
[00:10:04] Our goal is and always will be to make Bitcoin more useful. It made so much sense to partner with Braiins. It's always about the people and the people there are the most exciting part.
[00:10:15] From the bottom of my heart, it makes the biggest difference to work with them.
[00:10:21] We are human.
[00:10:22] We want to interact and do business with people we know and like.
[00:10:27] Plus Braiins has been around the block. They are the good guys in the bitcoin mining industry and they always will be. They walk the walk too.
[00:10:36] They were one of the early beta testers of Firefish. As the industry of bitcoin mining and mining pools evolve, we believe financial services will be a game changing value proposition to brains.
[00:10:50] Collateralizing is just the first step.
[00:10:53] What you all build next is what really matters.
[00:10:57] The journey begins.
[00:11:00] Let's build.
[00:11:02] Martin Matejka CEO of Firefish Lugano, Switzerland 8272024 Block height 8508678 Bitcoin the best asset ever created.
[00:11:21] What is Bitcoin?
[00:11:24] In order to understand anything that can be done with bitcoin, you must first understand Bitcoin.
[00:11:31] Truthfully, nobody may ever fully understand Bitcoin. Bitcoiners are actively looking for the bottom of the rabbit hole. Even Bitcoin's founder, Satoshi Nakamoto could not have predicted its path.
[00:11:45] Or could he?
[00:11:46] For as long as we can remember, we've used money in forms such as shells, gold coins, paper bills representing gold coins, paper bills and then to the pinnacle numbers on a screen held by a third party that only lets you access it in paper form if you follow various confusing steps and rules.
[00:12:07] That was of course until we had bitcoin.
[00:12:11] Bitcoin is the first ever money that allows for quick permissionless worldwide transactions.
[00:12:18] It is the first money neither issued nor controlled by a government or central bank in centuries, currency debasement has been around since currencies have. For many reasons, Bitcoin avoids debasement. There will only ever be 21 million bitcoins. It is such a simple concept that many naysayers refuse to accept this hard cap. They are wrong. Without this agreed upon hard cap and known issuance schedule, history has proven that those in control of the currency supply will use it to their advantage. No matter what the money is, people will try to take advantage of it.
[00:12:59] In the 14th century, beads were a form of money in West Africa.
[00:13:03] They were made of salt and glass, which were rare for them. It made sense to use rare, small portable objects as money. Then Europeans discovered this. They could recreate these beads with tremendous ease. So they did. With their newly counterfeited money, the traders greatly devalued the rest of the bead holders. This is impossible with Bitcoin. It is immune to counterfeiting.
[00:13:29] It is still important to know why millions of people love Bitcoin. We will look at that here. Many people, including the Braiins team and this humble author, contend that Bitcoin is as important an invention or discovery to humanity as fire, electricity or the Internet.
[00:13:49] But why?
[00:13:50] What is it?
[00:13:53] Bitcoin is a purely peer to peer version of electronic cash. Would allow online payments to be sent directly from one party to another without going through a financial institution.
[00:14:07] This sentence begins the Bitcoin white paper. Bitcoin is and will always be a digital payment system that one person can use to pay anyone else, anywhere on the planet at any time, without asking anybody for permission.
[00:14:23] Anybody with access to the Internet can use Bitcoin. It's comparable to many things.
[00:14:29] Every day, millions of people communicate with each other over the Internet via email. They create an address, type out information, then send that information out to somebody else who has also created an address.
[00:14:41] This is the same with Bitcoin. Just replace information with money. How does email work?
[00:14:46] Millions of computers process everything, ensuring that the correct messages are sent to the correct people. The Internet is not owned or controlled by one company. It's a decentralized network of participants.
[00:14:59] Take a guess how Bitcoin works. Obviously both are more intricate than that. But for simplicity's sake, that is how email works and that is how Bitcoin works.
[00:15:10] What if Bitcoin goes down?
[00:15:12] It has not. If it somehow does, then there are considerably bigger issues at hand.
[00:15:19] It will require the entire Internet shutting down worldwide. That has never happened before.
[00:15:26] Still if it somehow does the second the Internet and one bitcoin miner go back up effectively, so will the entire network. The bitcoin blockchain is just a record of who sends what money to whom.
[00:15:39] That will never ever change.
[00:15:42] As mentioned, Bitcoin has a fixed supply cap. There will only ever be 21 million.
[00:15:48] This is as foundational as anything. This fixed supply allows for predictability in Bitcoin. Yes, predictability.
[00:15:58] Bitcoiners know exactly how many there will ever be, which is the only thing in human existence we have absolute knowledge of. There may be more gold found somewhere on earth or in space. Companies may issue more shares of stock. Real estate, believe it or not, also doesn't have a fixed supply. If developers wanted, and if there was enough demand, they would build miles into the atmosphere for people to live in. One can also note that any property ownership is simply renting from the government or municipality who can seize it at any given moment. Study property taxes.
[00:16:34] All of those comparisons aren't really money though. And bitcoin is money. It really is. People use it to buy things. Today somebody bought something with bitcoin.
[00:16:47] But what is money?
[00:16:49] Go to any introductory bitcoin writing and you will find something like this.
[00:16:54] Aristotle says that money must be durable, portable, divisible and intrinsically valuable. The first three make plenty of sense. You must be able to carry money with you without worrying about it getting lost, so stolen or destroyed. And you must be able to pay in whatever denomination or fraction you wish. Austrian economics, however, would argue that nothing really has intrinsic value.
[00:17:16] What backs gold?
[00:17:18] Nothing really backs gold or government issued paper nodes. Bitcoin, on the other hand, is backed by terawatts of electricity and millions of computers working together in competition to secure and verify that every single payment is truthful and valid.
[00:17:36] Energy and electricity are the culmination of millions of years of evolution representing the true power, wealth and well being of human civilization.
[00:17:47] Bitcoin is the energy currency, the decentralized read not controlled by anyone or any group. Nature of Bitcoin is what differentiates it.
[00:17:59] Anybody can buy a bitcoin miner and partake in the network. You just need the computer, the electricity to power the computer and the Internet. For more information on what makes Bitcoin the best, please consult this fancy chart made by the wonderful Braiins design team.
[00:18:15] You'll find the comparison chart between gold, fiat and Bitcoin and the various traits of Money on page 14 of the PDF.
[00:18:24] Bitcoin is highly verifiable because a transaction will not work if a user sends coins he does not have.
[00:18:33] The only thing you can send on the Bitcoin network is Bitcoin. It cannot be counterfeited. It cannot be hacked. The only way to participate in Bitcoin is through the accepted decentralized channels through which everyone already participates.
[00:18:48] Bitcoin is highly fungible because every Bitcoin is worth the same amount.
[00:18:53] Bitcoin is highly portable because a user can memorize a 12 word seed phrase, think of a password and transport that anywhere.
[00:19:02] Bitcoin is highly durable because the blockchain which carries records of ownership of funds can never be erased. Anybody can own a copy of the blockchain without needing permission to do so. Bitcoin is highly divisible because it extends to eight decimal places. The smallest denomination is called a Satoshi.
[00:19:21] One Bitcoin is equal to 100 million Satoshis. Bitcoin is highly scarce because there will only ever be 21 million.
[00:19:30] Bitcoin, launched in 2009 does not have the track record that gold does. As a type of money, Bitcoin is highly censorship resistant because all valid transactions get included in blocks. Notice another thing with Bitcoin, gold and fiat, none of them have intrinsic value.
[00:19:51] Money exists for people to transfer and create value.
[00:19:55] Bitcoin is the best monetary technology, not the most intrinsically valuable.
[00:20:01] If you want to delve deeper into why Bitcoin is so fascinating as money and technology, please check out these three books dedicated just to this topic.
[00:20:13] The Separation of Money and State by Josef Tietek, Broken Money by Lyn Alden and the Bitcoin Standard by Sefedin Amus.
[00:20:24] Still, what actually is Bitcoin?
[00:20:28] In reality, Bitcoin is just a ledger picture, a super long scroll that a messenger from ancient Rome would read breaking news from just considerably longer. It contains recorded transactions from everybody and is updated and modified perpetually.
[00:20:47] Anybody can make their mark on this ledger by setting up a Bitcoin wallet and transacting. This can be as simple as buying it off an exchange and sending it to a different wallet. That one transaction exists forever.
[00:21:01] These coins aren't stored anywhere. Your private keys, like your password, enable you to edit your record on the ledger and send Bitcoin to other addresses.
[00:21:13] The only people who can do this are the ones who know the private keys. This gives users massive control over their own finances compared to banks who have strong control over your deposits, require regular password checks, passcodes to verify your device and restrict users with daily transaction limits.
[00:21:33] Believe it or not, there is a large contingent of people who enjoy having absolute control over their Finances. For decades, there has been pretty blind trust in banks who often have been incentivized to take advantage of their power over finances, much to the detriment of society.
[00:21:53] Still, there have been some ups and downs with bitcoin's perceived value or price over the years. It's a new technology which makes it extremely difficult to value.
[00:22:03] Bitcoiners love the freedom offered and the financial stability.
[00:22:07] Yes, stability, the fixed supply combined with personal responsibility and security is unmatched in any other asset or technology.
[00:22:20] Early, early bitcoin adopters saw this potential and ran with it regularly. There are stories of people who cashed out thousands of bitcoins for millions, then ride off into the sunset. These people are often called lucky. For every one person who retires from bitcoin, there are probably five or more who lost their private keys to thousands of bitcoins.
[00:22:45] The early bitcoiners who lost their funds likely didn't see the true value of it and simply forgot they had it. They'd also likely sell at a considerably smaller gain if they managed to keep their coins.
[00:22:58] Nobody who's made their retirement off bitcoin was lucky.
[00:23:03] The ability to buy and hold bitcoin from pennies to today requires incredible foresight, knowledge, patience and passion.
[00:23:14] They could have lost or sold their coins at any point leading up. Bitcoin has doubled over 16 times since it reached $1 in price.
[00:23:25] Still, some have never sold because they have real belief in it, because the best is yet to come.
[00:23:33] In my experience, there's no such thing as luck.
[00:23:38] Many people at first see that there is some digital currency with volatile price movement and think, gee, look at all the geniuses involved in this.
[00:23:48] In bitcoin's short history, there have been countless scandals, scams, catastrophes, literally lost money. You name it, they've all made it stronger. Bitcoin is much more than some Internet token that nerds in their parents basement trade amongst each other. Bitcoin is the ultimate mixture of technology, history, philosophy, energy and more.
[00:24:11] There is intricate intent behind a multitude of details that tells a bigger story.
[00:24:17] Satoshi left us messages in Bitcoin's structure showing us this was more than just an experiment.
[00:24:25] On October 31, 2008, Satoshi Nakamoto posted Bitcoin, a peer to peer electronic cash system on a platform called Metsdao.
[00:24:36] Thanks to a passionate, smart few and the power of the Internet, Bitcoin has grown literally, figuratively and spiritually across the globe.
[00:24:47] On October 31, 1517, Martin Luther posted his 95 Theses to the door. Of All Saints Church in Wittenberg. Thanks to a disgruntled bunch of Christians and the power of the printing press, the Reformation spread. Changing the world as we knew isn't crazy to view this as a coincidence. If you look deeper, however, you may find it's just the tip of the iceberg.
[00:25:14] The domain name for bitcoin.org was purchased on August 18, 2008. Satoshi had 74 days to share his white paper with the world. But he waited. He waited until Halloween, 491 years after Martin Luther, to post it.
[00:25:31] Bitcoiners now have a second holiday to celebrate on October 31st, White Paper Day.
[00:25:38] Bitcoin miners, however, celebrate the day the first block was mined. On January 3, 2009, Satoshi Nakamoto mined the first bitcoin block, inscribing the day's front page headline from the Times Chancellor On Brink of Second Bailout for Banks the global financial crisis was in full swing. Foreclosures, bankruptcies, and bailouts were as common as days ending in y.
[00:26:07] Bitcoin legitimately started with the worst stretch of global banking in decades.
[00:26:13] This date, January 3, 2009, was likely chosen because that was the day Satoshi wanted to start bitcoin, not for any secret reason. But that inscription on the first ever block mentioning governments propping up a failing banking system has so much meaning. Governments who have indefinitely abused monetary policy bailed out banks who abused the financial system.
[00:26:40] These two institutions are forever tied to Bitcoin.
[00:26:45] On the P2P foundation forum, Satoshi Nakamoto listed his birthday as April 5, 1975.
[00:26:53] This is the 42nd anniversary of Executive Order 6102. On April 5, 1933, United States President Franklin Delano Roosevelt confiscated all US citizens gold.
[00:27:07] Anyone who held gold could sell it back for $20.67 per ounce or face a $10,000 fine or 10 years imprisonment, or both.
[00:27:20] On January 30, 1934, less than a year after buying everybody's gold at $20.67, the US raised the price of gold to $35 an ounce.
[00:27:33] Everyone who previously sold their gold lost out on 69.32% gains.
[00:27:41] Talk about a rug pull. Who gained money? The United States government did, printing the new money as required by the gold standard.
[00:27:51] Perhaps bitcoin was born on April 5.
[00:27:55] For those new to bitcoin, a block is a set of transactions compiled, reviewed, and added roughly every 10 minutes. Every 210,000 blocks, the block subsidy gets cut in half. This is called a halving.
[00:28:12] The first one occurred on November 29, 2012, dropping the block reward from 50 bitcoins to 25.
[00:28:20] Oddly enough, the yearly inflation rate of bitcoin also dropped from 50% to 25%.
[00:28:27] This happens every halving. The design of bitcoin is so that its block reward is also the percent increase in supply each year.
[00:28:37] All of this adds predictability to bitcoin.
[00:28:42] How many United States dollars will be in circulation in the year 2040?
[00:28:48] In the past, these halvings have led to an increase in price thanks to the decrease in new supply.
[00:28:55] Because of this, bitcoin is often a hot topic a few months after each one. Interestingly enough, a bitcoin halving is projected to happen during every United States presidential election year.
[00:29:07] Maybe Satoshi picked January 3, 2009 for a reason, huh?
[00:29:13] Individually, all of these small things are just tiny details that have coincidental double meanings. It's fair to call them a stretch. Individually, together, they show a clear design of what led to bitcoin's creation.
[00:29:28] These values and intentions behind Satoshi's invention create a story that does the marketing for bitcoin, not some fancy marketing department like the one who put this book together.
[00:29:41] Maybe Satoshi just randomly released the white paper on October 31st.
[00:29:45] Maybe he just randomly put a news headline on the first ever block. Maybe he just randomly picked a date as his birthday. Maybe he just randomly decided that four years for each having made sense.
[00:29:57] But what if he didn't? What if he knew he created the most important technology known to man?
[00:30:05] Maybe he did. Maybe he didn't. It doesn't matter. The first domino has been knocked over.
[00:30:14] Why Rich People Never Sell Their Assets Written with guest contributor Uri Bednar, hacker, coder and Author.
[00:30:26] They don't need to.
[00:30:29] When people make more money, they typically have to pay more in taxes.
[00:30:34] Rich people don't like that.
[00:30:36] Why people don't like to pay taxes might belong in a different book. But generally speaking, some people do not want to see half their income go towards the government who can just print money out of nothing. Anyhow, there are ways around this.
[00:30:50] Billionaires like Jeff Bezos and Elon Musk are often criticized for their lack of tax payments. They, of course, have enough money to pay the best accountants who develop the best tax optimization plans, allowing them to minimize their tax payments while avoiding fines or jail time.
[00:31:09] The reality is often surprisingly simple.
[00:31:12] Those who do not earn an income do not have to pay income taxes. Those who do not realize capital gains do not have to pay capital gains taxes. A common way billionaires finance their lifestyle or New Ventures is by borrowing. They go to a private bank and say I own shares in my company and would like to use them as collateral to take out a loan.
[00:31:36] Of course, if they give the bank $10 million worth of stock, they can borrow a lower value, say 1 million or 5 million dollars. This ratio is called LTV loan to value. It protects the lender against sudden drops of the collateral's value.
[00:31:53] Elon Musk famously took out a $12.5 billion loan with $62.5 billion of his Tesla stock after as collateral to Purchase Twitter in 2022. According to the SEC filings, this loan had an LTV requirement of 20% as of the closing date. This is one of many examples of billionaires having the ability to grow their wealth through leveraging it.
[00:32:22] The advantage of this approach is not only tax related. The shares that are pledged to the bank as collateral allow the owner to keep their company's voting rights so they don't lose control of their business.
[00:32:35] If the value of the shares plummets, the bank can call on the borrower to repay the loan or replenish the collateral. If the owner fails to do so, the bank will sell the shares on an open market.
[00:32:48] Besides, it is headline news when someone like Jeff Bezos sells Amazon stock. Amazon, The S&P 500 and the American economy as a whole all benefit when the CEO of the strongest company in the nation has faith in said company and wants as much equity as possible.
[00:33:07] Besides, why would someone save in fiat?
[00:33:12] Why don't rich people sell their assets?
[00:33:14] Because institutions have made it so they don't have to. Even still, the current setup of financial institutions requires you to play by their rules, which are said to be quite confusing.
[00:33:29] Capital Gains Some who own bitcoin don't hodl forever. Some sell and take profits. Some trade.
[00:33:39] This gets risky. Anybody worth a satoshi knows that Bitcoin can experience short term volatility.
[00:33:47] What happens when somebody takes profit wanting to trade, then buys back in except the price drops after they buy back in. Well, they might owe taxes that they cannot afford to pay.
[00:33:59] This is an issue with capital gains taxes. They essentially tell you you don't really have as much money as you think. Suppose you sell $100,000 worth of Bitcoin but owe 15% of that in taxes.
[00:34:13] Did you ever really have $100,000?
[00:34:17] It depends on Certain nations have bitcoin friendly tax laws and do not require capital gains taxes on bitcoin nor taxes on bitcoin transactions.
[00:34:28] This is a forward thinking tax code that promotes the growth of bitcoin and wealth creation in general.
[00:34:34] Unfortunately, not all countries are smart enough to do this. Hopefully the previous sentence is obsolete by the time this book is printed or at least when you first read it.
[00:34:45] So what can bitcoiners do?
[00:34:47] Anyone passionate about the big orange coin will answer, still not selling.
[00:34:53] Most of us are quite patient in this regard with low time preferences. They will sacrifice not having certain luxuries like a new car or the best clothes to have more bitcoin. Some may not share this sentiment though. They know they're sitting on a hoard of digital gold and they want to use the value they have. Again, it's their stuff. They should be able to do whatever they want with it.
[00:35:16] Why can't they take out a loan with their bitcoin as collateral? Everyone else does it with much less valuable assets.
[00:35:26] Well, now they can enter firefish and collateralized Bitcoin Manageable Debt Isn't a Bad Thing over the years of currency debasement, people have not been able to buy things like homes, cars and education on their own.
[00:35:46] Nearly everybody has some type of debt. Some of it is predatory and unethical, taking advantage of the terrible financial system we're forced to live in.
[00:35:56] Some of these companies even make catchy slogans to get you to take out a payday loan.
[00:36:02] That is a terrible debt that takes your problem, increases it and passes it back to yourself roughly two weeks later.
[00:36:11] Sixteen US states have outlawed this practice because of how ridiculous and predatory it is. It's ironic people with more money can take advantage of that by not spending their excess for a few weeks only to receive greater returns in short periods of time.
[00:36:26] There's nothing wrong with leveraging your wealth, knowledge and overall circumstances to increase wealth.
[00:36:33] Just don't take advantage of those who already can't pay for their necessities.
[00:36:39] Like it or not, we live in a debt eat debt world.
[00:36:44] If you want something of value, you typically must either be a card carrying member of the lucky sperm club or take on debt.
[00:36:54] Believe it or not, hard work still goes a long way in this world.
[00:36:59] Still, with every percentage point that inflation increases, hard work and money become less valuable.
[00:37:07] Prices increase more than what we earn, so we must take on debt to buy what's needed. Having debt doesn't make you financially illiterate. Though. Not everybody with some debt is unable to afford their credit card bill, few successful companies have gotten where they are without some level of debt, especially brains.
[00:37:29] If it is structured well enough with the sufficient means to pay it back, then debt isn't a bad thing.
[00:37:38] The same goes for individuals. Going into debt to buy a house you're comfortably able to make payments on is considerably different than going into debt because you can't pay your bills on time.
[00:37:50] Circumstances surrounding both of those may differ, but debt can be a tool to increase savings in the long run if it's paired with something that increases in value over time and payments can be sustained easily. Debt is not a bad thing.
[00:38:08] Debt is a tool. Like all tools, it can be used well or poorly, depending on who uses it and and how it's used.
[00:38:18] To put it mildly, it's bleak that it's essentially impossible to own anything of value in today's world.
[00:38:25] This unfortunate reality makes bitcoin held in cold storage, that much more valuable.
[00:38:33] Hodl.
[00:38:35] They're called assets for a reason too.
[00:38:39] A key thing behind an asset is is value.
[00:38:43] People generally prefer to own something that increases in value rather than something that has the same or even decreasing value.
[00:38:52] That way they can get more from it. More housing, more food, more clothes, more vacations. It's your stuff. You should get to do what you want with it.
[00:39:03] With our society of inflation and currency debasement, nearly any asset will drastically appreciate in value compared to the US dollar or other fiat currencies. Rich people do their absolute best to hold as few actual dollars as possible.
[00:39:20] So do bitcoiners.
[00:39:22] Entire financial advising industries have come about purely focused on avoiding the inherent loss of value associated with holding fiat currency.
[00:39:33] Companies specialize in finding investments to protect and increase wealth. As Michael Saylor said, dollars are like melting ice. Eventually you'll have less than what you once had if you let it sit there and leave them alone.
[00:39:50] Whether they know it or not, people actually hate dollars. They're incentivized to 401 s. Roth IRAs, pensions, and more. All tell people not to hold dollars now and to realize them later.
[00:40:05] With 401ks, the income supplementing them is pre tax.
[00:40:09] With Roth IRAs, the realized cash is tax free. People are encouraged to avoid taxes if they want to increase their wealth. This mentality is quite common in bitcoin too. The term HODL is ingrained in every bitcoiner's mind during a bear market. We know that our coins will perpetually have more value in the future, so we won't sell regardless of any outside market influences driving the price up or down.
[00:40:40] Not all bitcoiners are rich people, and not all rich people are bitcoiners. However, both bitcoiners and rich people prefer not to sell Another fancy term smart people like to use is exit strategy. Basically how much and when you plan to sell something.
[00:41:01] In this case, Bitcoin. Bitcoiners often joke that there is no exit strategy that they'll never have to sell. They'll spend it, but before they spend it, they may need to collateralize it. It doesn't sound as ridiculous as you may think too.
[00:41:17] While the current setup of the financial system allows people to take advantage of existing methods to use collateralization and debt to live as their wealth increases over time, Bitcoin is a new financial system.
[00:41:32] This means new things must come to support Bitcoin and further its adoption. The title of this book is the Ultimate Collateral. Collateral generally requires borrowing. It's time to discuss borrowing a collateral and lending Deep dive Debt and Fiat Few people can buy things outright.
[00:42:01] As mentioned, in today's world, everyday people have lost the opportunity to instantly purchase common goods like cars and homes. An overwhelming number of factors such as currency debasement, inflation and government control in financial markets are part of why Bitcoin was created and now thrives.
[00:42:23] Bitcoin was made to help people save money and fully own what they buy. It sounds ridiculous to say that it is the unfortunate truth. Actually owning something you make a significant purchase on is as far fetched as retiring before 60.
[00:42:41] With costs rising and wages not meeting costs, people need help buying things.
[00:42:48] Our society relies on banks to make those purchases for the consumers who pay back the banks once a month for 30 years. The same goes for things like cars, just with shorter loan terms.
[00:43:01] In both instances, a house or an automobile serves as collateral for the loan. If payments aren't made, the loan provider, the bank will repossess the collateral.
[00:43:13] This unfortunate event is typically agreed upon by both parties in the debt contract.
[00:43:18] Even still, it's difficult to get loans with favorable terms, especially with no collateral other than what you're buying.
[00:43:28] If you've read the above and thought our money is a disaster, how can we count on everybody to repay their debt? You're onto something.
[00:43:36] Unfortunately, not all debt gets paid despite the debtor promising to pay it back. Because of this, lenders try their absolute best to figure out the odds someone will pay their loan back in full.
[00:43:49] The Fair Isaac Corporation, otherwise known as FICO, created the first ever credit score in 1989.
[00:43:57] They devised a way to measure someone's likelihood of repaying debt based on payment history, amount owed, new credit, length of credit history and credit mix.
[00:44:08] They track everything you buy and how much of it you've paid off, then estimate how likely you are to take on a new loan.
[00:44:16] Credit scores are the epitome of centralized and trusted third parties.
[00:44:24] Shockingly, with the financial conditions mentioned above, people with worse conditions tend to get worse interest rates. This added fee just makes it even more difficult for them to pay off their debt.
[00:44:37] It traps the debtor in a revolving door of I can't own this, so I need a ridiculous loan that I can't pay off, which makes me not able to own anything else.
[00:44:49] Still, for those with the ability to service their loans, taking out a mortgage to buy a home often gets them a lower monthly housing payment than rent. Again, it's their money. They can do what they want with it to live their preferred lifestyles.
[00:45:04] With the correct environment, debt can be a tool to leverage value and gain ownership of something.
[00:45:13] Benefits of Corporate Debt Companies have known this for years. As many know, businesses fund themselves with money from either loans or investors. It's usually a mix of both.
[00:45:27] With debt, you must pay back the lender with interest.
[00:45:31] With equity, the investor's initial money ideally grows with the company over time.
[00:45:37] Like an individual who pays off his mortgage and fully owns his home, a company who fully pays off its debt gets to reap the rewards of having fewer investors to answer to.
[00:45:49] Businesses often own things like buildings, factories, stores, intellectual property, goods, etc. That serve as collateral for these loans, making it easier to finance new projects through debt. Again, like individuals, it's easier if the business thrives too.
[00:46:08] Simply put, the best companies get the best loan terms. If it's obvious they can service their debt, then lenders are more likely to lend to them like humans with their credit scores. Other companies like Moody's, Standard and Poor's and Fitch, all rate companies based on their likelihood of servicing their own debt.
[00:46:29] Companies are free to do whatever they wish with their money and business structure if their goal is to be as profitable as possible for their investors. Some businesses will accomplish that through taking on debt to fund new ventures, while not diluting those investors simultaneously. It is inherently riskier for those investors, however, as the debt will take priority in the event of a bankruptcy.
[00:46:54] Still, for those investors who prefer the riskier strategies, they understand that no payout whatsoever is worth the reward if they get a bigger slice of the pie. Investors at any scale may prefer debt for funding so they can maintain their ownership stake.
[00:47:13] Debt with Bad Collateral There have been times when the collateral backing debt becomes worthless. Bitcoin was partly started because of the financial crisis of 2008, which happened because of bad collateral.
[00:47:30] Lenders bundled their mortgages into securities and used these securities as collateral for trillions of dollars in loans.
[00:47:39] People bought these securities expecting a return of roughly 2 to 3% per year to keep up with inflation.
[00:47:47] Banks often run at considerably slim profit margins, so those types of gains are significant to them, especially considering the scale of their cash holdings.
[00:47:57] People packaged groups of loans sold them, and then the buyers of those loans took out new loans with those packaged loans as collateral. As I'm sure you can imagine or recall, things went swimmingly.
[00:48:12] It seemed fine. Why would somebody take out a mortgage they couldn't afford?
[00:48:17] Famed bitcoin hater Charlie Munger once said, show me the incentive and I'll show you the outcome.
[00:48:24] Lenders were incentivized to offer adjustable mortgage rates to debtors who had no realistic way of sustaining their monthly payments.
[00:48:33] Individuals everywhere defaulted on their debt, starting one of the biggest domino effects in history.
[00:48:40] The incentive structure of mortgage issuers rewarded high quantities of loans. So that's what the outcome was. From there, the outcome was that the quality of the loans was next to nothing.
[00:48:54] Imagine working for a bank. Your job is to physically go to all foreclosed homes and repossess them. The former owners, who signed a contract they didn't understand, are furious with, but they blame you. You tell them they have 30 days to vacate the premises. They don't have to go home, but they can't stay here.
[00:49:13] Thirty days later, you return ready to begin the resale process. For giant bank national, the home is drastically different. The front door is boarded up. Wallpaper has been ripped down, holes punched through walls. Anything that can damage a house has happened. But at least those former homeowners are gone and your bank has got its collateral back. It just might be a bit tricky to restore the value you thought you had.
[00:49:40] From September 2008 to September 2012, there were roughly 4 million completed foreclosures in the United States.
[00:49:50] Now, not every one of those resulted in a completely ruined house, but it was a significant enough occurrence that a city in California was offered up to $1,000 for people to not trash their home before they were foreclosed. Still, the housing market was thoroughly depleted.
[00:50:10] Banks that took over these homes saw massive losses compared to what the houses were originally sold for.
[00:50:18] When lending, it is important to have collateral that can be easily collected and quickly converted to cash to recoup the investment.
[00:50:27] Otherwise, it's not really collateral, is it?
[00:50:32] Escrow an even more interesting aspect of lending is escrow. It involves using a trusted third party to hold an asset, goods or money. While a transaction settles for example, if somebody wants to purchase a bitcoin miner from a supplier they haven't used before, they may have a third party that the seller and buyer agree on. Hold the funds until delivery of the bitcoin miner is made. In that instance, the money goes to escrow until the seller holds up their end of the deal.
[00:51:05] While this process adds trust to a deal, it also adds time and red tape.
[00:51:12] Large payments take one day at minimum to settle, so if you add a third party to each trade, you lose valuable time. The traditional escrow process leads to further inefficiencies. Is there a payment system that allows for instant, permissionless transactions at the click of a button?
[00:51:30] Perhaps there is a way to integrate this into escrow liquidation We've mentioned a few times that not everyone can pay back their loans. When this happens, the lender typically does everything in their power to recoup their losses, meaning they take back what they gave you, even if it's a house.
[00:51:51] This is called liquidation.
[00:51:54] Liquidation also happens in trading with debt. Some risky investors prefer to leverage their cash to purchase more than what they can afford to on the assumption that they will make money on their investment, pay off the debt and still make a profit.
[00:52:08] What happens if the investment plummets if it reaches a certain low enough point where the lender closes out the entire investment and the investor is left with nothing?
[00:52:21] Liquidation looms on many debt maneuvers, so it is important to keep in mind all outcomes, especially negative ones, when taking on any type of loan.
[00:52:33] Loans are confusing and difficult.
[00:52:37] This entire chapter has been written as if anybody can walk into a bank and receive a loan instantly.
[00:52:44] In a society like ours, this is the furthest thing from the truth. It can often take weeks or even months to receive approval from banks to take out a loan.
[00:52:55] Typically, you must show up looking presentable and give intricate details about you your background, your lifestyle, your employment history, and anything else that may be relevant to your ability to pay them on a monthly basis.
[00:53:09] The same applies on the corporate level, though you likely need corresponding business documents showing projected cash flows with various outcomes, often for new businesses. Banks may require some type of personal collateral to secure a corporate loan due to a lack of established history. Paying Back Debt as a Company for those with a proven track record of paying off debt, they easily can take on more after Apple is far more likely to receive a loan than Joe Smith's new cement mixing company. Like mentioned in the last chapter, the structure of lending is meant to be easier for the elites at the expense of the plebs Thankfully, a platform exists that equalizes this uneven playing field, making it easier for everyday people to take advantage of the positives of debt.
[00:54:00] Enter Firefish Bitcoin is the ultimate collateral Lenders want security.
[00:54:12] Lenders prefer to have something behind their loans. It adds a security blanket that protects the agreement. Basically, any type of legal agreement will carry some type of guarantee. Anything with value can serve as collateral. Some examples might be a house, a a car, a boat, cash, shares of stock, precious metals, art, jewelry, anything that may require a significant amount of money to purchase.
[00:54:39] If the lender sees you have something valuable, they'll be more trusting that you can repay your loan. They may even offer better terms too.
[00:54:48] Obviously, the big risk here is that if the loan is defaulted, the collateral goes with it. Generally speaking, the lender would rather have their loan paid back in full, so they'll make several attempts to receive their payments prior to seizing any collateral. As discussed last chapter, it can be quite frustrating to physically collect collateral, especially when a bad debtor knows it's going to be claimed. There are downsides to every one of those options for collateral. A house, again can be damaged, difficult to maintain, difficult to resell, and obviously cannot be moved. A car's most reliable feature is its ability to drastically lose its original value. A car also can be difficult to track down in the event of a default. A boat similarly loses value at a rapid pace. They can also be damaged, even sunk further adding risk as a collateral. When out on the water, the only constant is unpredictability.
[00:55:46] Boats are certainly not the best form of collateral.
[00:55:51] Boats are dangerous too. I actually lost my Bitcoin private keys in a boating accident. Feel free to join me at the next BRAIINS Boating Accident Support meeting held Tuesday nights at 7pm CET. Christian Chepsar brains Chief of Propaganda, tragically suffered a boating accident with the video posted on X.
[00:56:09] Cash seems like a simple, reliable option, but also it will constantly lose its value over time.
[00:56:16] Inflation wrecks the value of cash, especially when the inflation rate grows. The more inflation grows, the less purchasing power you have over time, so a small percentage difference actually makes a drastic impact over an extended period of time.
[00:56:31] Cash always becomes less and less valuable over time due to inflation, a key factor in our society.
[00:56:39] Loss of collateral value paired with interest rates are not a good match.
[00:56:44] Shares of stock seem like a great option, however, when a famous CEO has a public liquidation price, that may lead to price manipulation and in turn a lack of market faith in the future price growth.
[00:56:58] Precious metals like gold or silver are a common option. Though they are not very portable due to their weight and size, they are also easily hidden, which could lead to some problems when collecting on the collateral.
[00:57:10] These are historically strong stores of value, so in the right setting they are probably the best option of the ones listed.
[00:57:19] Art and jewelry are easily lost or damaged and are subject to the risk of price volatility. A painting is only worth how much someone will pay for it. Centuries of art and jewelry theft may also weaken their viability as collateral.
[00:57:34] The best, simplest, ultimate form of collateral is something that can instantly be claimed and sold at any time when the debtor fails to make their payments. A house can take months, even years to sell. Stocks too have time restrictions, but Bitcoin doesn't. Bitcoin is always in motion.
[00:57:57] In his post, x userybates1895 points out with the graphic on the last page that Bitcoin has had more trading hours than the stock market since President Nixon took the US off the gold standard. Bitcoin is convertible into cash at any time, on any date.
[00:58:19] Bitcoin is a Technology in the first chapter, we discussed how Bitcoin is the best asset ever created.
[00:58:28] Remember, Bitcoin is Bitcoin is also a technology.
[00:58:33] Anybody can use it anywhere, at any time. It is digital, fungible, portable, and verifiable. If it's properly used as collateral on a loan, it is remarkably easy to liquidate. It's impossible to damage a bitcoin when dealing with collateral. It requires trust first. You trust that the debtor will pay back the loan in full and you'll never have to worry about liquidating them. In the event that happens, you trust that the defaulted debtor will freely give up their collateral if it was not already secured before the loan started.
[00:59:07] Finally, if you do end up securing the collateral and claiming it, you have to trust that it will retain the value it originally had.
[00:59:16] Don't trust Verify When Bitcoin is secured in escrow in a multisig wallet, it functions as the greatest collateral ever. It will not need to be claimed, and there is no worry that what you receive won't be what you agreed to collateralize in the first place.
[00:59:34] Additionally, there is no concern that the bitcoin will be spent, changed, or anything since it can't be moved.
[00:59:42] What is a multisig wallet, though?
[00:59:46] Origins of Multisig Written by Brian Cubellis, Chief Strategy Officer at Onramp Bitcoin Onramp Bitcoin specializes in multi institutional multisig custody for individuals, institutions and companies that hold Bitcoin Multisig, or short for multi signature, is a foundational feature of the Bitcoin protocol that requires multiple private keys to authorize a transaction rather than relying on a single key.
[01:00:17] Simply put, if you send your Bitcoin to a friend from your mobile app wallet, you just need one approval your own. For more security. There are setups where you need approval of two or more friends in order to send funds from your wallet. This setup is ideal for those with massive amounts of Bitcoin, typically large companies who want their funds to be as secure as possible.
[01:00:41] When multisig was introduced in Bitcoin's original protocol design through its native scripting language, this functionality was not easily accessible in early implementations.
[01:00:51] The breakthrough for practical use came through several key BIP's or Bitcoin improvement proposals. BIP 11 in 2011 proposed the formalization of multisig transactions, specifying how multiple private keys can be used in combination with to authorize a transaction. This created a framework for enhanced security, but its implementation remained complex.
[01:01:17] BIP 13 from 2012 introduced pay to script hash, or P2SH, an innovation that abstracted away the complexities of multisig by allowing users to send funds to a script hash rather than a more cumbersome multisig address.
[01:01:35] BIP16 in 2012 refined P2SH, further enabling users to create multisig wallets without the need to manually interact with complex scripts, thereby broadening its usability.
[01:01:49] These BIPs collectively transformed multisig into a widely accessible and practical security tool, allowing for enhanced control, risk distribution, and asset protection in Bitcoin ownership.
[01:02:03] At the core of multisig's functionality is the M structure, which requires a subset m of a total number of private keys n to authorize a transaction. For example, in a two of three multisig wallet, three private keys are distributed, but only two are needed to approve a transaction. This structure enhances both security and usability, providing redundancy in the case of key loss while preventing any single party from gaining unilateral control over the funds.
[01:02:37] It supports various configurations such as corporate governance, shared custody arrangements, and decentralized escrow systems, making it adaptable for diverse Bitcoin custody needs.
[01:02:50] Bitcoin's unique custodial properties As a digital bearer instrument, Bitcoin presents both opportunities and challenges in terms of assets. Asset custody Unlike traditional financial assets, where transaction reversals or error corrections are possible through financial intermediaries, Bitcoin transactions are immutable once confirmed on the blockchain. This makes effective custody a critical issue if Bitcoins are lost or stolen due to mismanagement or security breaches, there is no recourse for recovery.
[01:03:24] This immutability distinguishes Bitcoin from physical bearer assets like gold, which which rely on physical security measures such as safes or vaults. Bitcoin being digital requires cryptographic security to protect private keys and prevent unauthorized access.
[01:03:41] Effective private key management, whether through hardware wallets, software wallets, or multisig configurations, is essential for safeguarding Bitcoin from theft or loss.
[01:03:54] Eliminating Single Points of Failure Single signature wallets concentrate risk by relying on one private key. If that key is compromised or lost, the entire Bitcoin balance is at risk.
[01:04:10] Multisig, by contrast, introduces fault tolerance by requiring multiple keys to authorize a transaction, thus reducing the risk of theft or loss due to a single point of failure.
[01:04:23] Multisig allows for the distribution of control among multiple parties, requiring agreement from a quorum of signers before a transaction can be executed. This model is particularly effective in reducing the risks posed by a single entity's security failure or malfeasance.
[01:04:43] Furthermore, Bitcoin's digital nature uniquely allows for a level of collaborative oversight and security that physical assets cannot achieve. Reflecting the decentralized ethos embedded in the protocol, Multisig represents a powerful tool for distributing counterparty risk and increasing security.
[01:05:04] Its open source interoperable standard allows users to configure multisig in different ways, whether holding all keys themselves, sharing keys with trusted parties, or distributing keys across institutions.
[01:05:18] This flexibility enables Bitcoin holders to implement customized security models tailored to their specific needs.
[01:05:27] Onramp's Multi Institution Custody Model at my firm Onramp, we've pioneered a multi institution, multisig custody model that builds upon Bitcoin's native security features.
[01:05:42] Our model distributes keys across three independent entities chosen by the clients, including different geolocations and jurisdictions, minimizing counterparty risk while eliminating any single point of failure.
[01:05:56] No single institution has a unilateral control over the client's assets, ensuring a balanced distribution of authority and responsibility.
[01:06:06] This structure is designed to protect client assets while significantly reducing the risk of key mismanagement or loss.
[01:06:15] In this model, clients are freed from the complexities of managing private keys themselves, thus reducing their technical burden and eliminating a single point of failure. At the same time, they retain ultimate control over their funds, as the institutions in the multisig quorum cannot move assets without the client's explicit direction. This innovative approach balances security with usability, aligning the interests of all parties while safeguarding client assets.
[01:06:45] Our multi institution, multisig solution marks a significant advancement in Bitcoin custody, expanding the power and accessibility of multisig arrangements. By distributing control across independent entities, we align incentives for security and transparency and fiduciary responsibility.
[01:07:06] Bitcoin's auditable nature ensures that all custodial actions are transparent, fostering trust while discouraging malpractice.
[01:07:15] This security is important in making Bitcoin the ultimate collateral. Without it, there is considerably more risk and trust in the collateral process.
[01:07:25] When it is locked, there is no way it can be sent to someone else, spent or lost.
[01:07:32] Brian Cubellas, Chief strategy Officer on Ramp Bitcoin When Bitcoiners call Bitcoin the most secure asset ever, multisig is one of the key reasons a Bitcoin recipient does not even need to verify when a transaction goes through. The miners and nodes do that for us.
[01:07:54] Growth Collateralized bitcoin more often than not, appreciates in value.
[01:08:02] Since its start in 2009, nothing has gotten more valuable. In 2010, Bitcoin literally was worth pennies. The return on investment from holding Bitcoin in 2010 is roughly 90 million percent.
[01:08:16] 90 million percent with two commas, not every bitcoin holder can boast those types of gains. In fact, very few, if any, can.
[01:08:25] Still, anybody who has held bitcoin for over four years is in profit.
[01:08:30] This book does not offer inclinations of bitcoin surging that much anytime soon, but it sure would be nice. It may happen eventually, but it's impossible to predict.
[01:08:40] Still, Bitcoin has carried a compound annual growth rate of about 167% since its inception.
[01:08:49] For comparison, Gold's CAGR is is 5% since 2010. The S&P 500's is 13%. A lender would love to use an asset that grows 13% a year as collateral. Imagine multiplying that number by over 10 and combining that result with a strict limit in supply.
[01:09:13] Once they realize that, all they'll see is orange.
[01:09:18] So there is an asset that performs better than any other, can be sent anywhere at any time, and has no risk of being damaged, stolen or hidden when serving as collateral.
[01:09:30] How can you do it?
[01:09:34] Welcome to Firefish by Igor Neumann, Firefish Co Founder and COO Disclaimer all statements about Firefish reflect their platform and products at the time of publication. The team reserves the right to build further, which in turn may lead to changes, in some terms.
[01:09:55] How it started.
[01:09:57] Firefish, like many other aspects of bitcoin, originated from traditional finance, also known as tradfi. As you read in his forward, Martin Matejka the Firefish CEO spent his career working for a trading desk dealing in energy and commodities. Collateral is standard in traditional finance. Everyone has access to it and everyone uses it. Still, there weren't many people working in that industry who knew about Bitcoin at one point in time. Postal services dismissed email hopefully we'll make that comparison about Bitcoin soon enough.
[01:10:32] Still, there was no bitcoin native option to properly collateralize bitcoin. One option was through centralized custodial lenders. This was referred to as the trust me bro model. Hopefully the custodian sent your bitcoin back to you. The other option was via decentralized finance or DEFI platforms where you'd wrap or bridge your bitcoin to a different blockchain, then hope that the new blockchain wouldn't get hacked or fall victim to fraud. The year 2022 was one of the worst years for Bitcoin. Fueled by the collapses of known global cryptocurrency, exchange lending and custodial companies FTX, Celsius, BlockFi and Genesis. Bitcoin's price fell from 46,311 to 16,603.
[01:11:21] That is a crash of 64% in one year.
[01:11:25] Thousands of customers lost millions and people still don't have their full deposits back.
[01:11:31] A big thing in Bitcoin though is that during the worst of times, builders build.
[01:11:38] So in 2022 Martin combined his tradfi knowledge of collateral and his faith in Bitcoin as a financial savior to create Firefish. It was founded by bitcoiners who knew that 1 bitcoin is the ultimate collateral and 2 rich people never sell their assets.
[01:11:58] Keeping those two key ideas in mind, we went about it as Bitcoin as possible. It offers completely peer to peer lending, operates in an automated bitcoin only way and removes trusted third parties from the process.
[01:12:12] Firefish developed a non custodial protocol where bitcoin is locked directly on the blockchain and outside parties do not have access to it. It is the ideal way to collateralize Bitcoin. As Martin would describe it, Firefish is an open lending marketplace connecting bitcoiners, institutions and investors.
[01:12:35] The key word there is marketplace. People can interact with the platform as borrowers locking their Bitcoin and receiving a loan against it, or investors lending their money to borrowers and earning a yield while keeping their investment safe as the loans are over collateralized 2 to 1 long bitcoin short Fiat Firefish in its DNA is a long bitcoin short fiat company what does that mean though? When you short a stock, you borrow it and then sell it immediately with hopes to buy it back later at a lower price.
[01:13:15] Ideally, your profits come from returning it at a lower value later on. People typically do this with companies that struggle.
[01:13:23] Simply put, companies that are destined to fail get shorted. What about currencies that are destined to fail to short fiat? You can pledge your Bitcoin as collateral, not selling it to borrow fiat and spend immediately. You can spend it on a house, a car, starting a business, anything. Maybe you'll spend it on more Bitcoin. It is inherently the same process though. You borrow money and and spend it immediately, planning to pay it back at a later date with the knowledge that fiat currency is designed to devalue over time.
[01:13:58] Nominally, yes, you may be paying more in interest, but with the fiat standard of inflation, you know you're doing the right thing, holding as little fiat as possible.
[01:14:10] All the while, your Bitcoin, designed to appreciate in value over time, serves as collateral to protect your loan. Fiat loses considerable purchasing power over time. It makes sense for your liabilities to be in melting ice, not your savings.
[01:14:30] Overview so Firefish is a marketplace platform connecting borrowers and lenders with Bitcoin as the key collateral piece. But how does it work in detail?
[01:14:43] Simply people go on the interactive marketplace and see if anything makes sense to participate in. Prospective borrowers can request a loan indicating the amount they want to borrow, currency tenor and the interest rate they'd accept.
[01:14:59] Investors can see all the offers in the marketplace and choose a deal that meets their requirements with the same criteria. Once an investor picks a deal, the borrower locks their Bitcoin as collateral and the investor sends money directly to the borrower's bank account.
[01:15:16] Rather than submitting countless forms, sitting through meetings and wanting to pull your hair out with a bank loan. The Firefish process is designed to be quick, transparent and market driven.
[01:15:28] The only thing that serves as collateral with Firefish is Bitcoin, the ultimate collateral.
[01:15:35] Again, it was designed for bitcoiners by Bitcoiners. The non custodial decentralized lending process sends funds directly to the borrower's checking account, allowing them to fully unlock the value of their Bitcoin without dealing with capital gains taxes.
[01:15:51] It's a dangerous business sending your Bitcoin elsewhere. You give it to someone else and there's no knowing where it might get sent off to.
[01:15:58] Having other people control your collateral requires trust. Bitcoin exists to remove trust from finance. It enables people to have full control over their money. And gives them the ability to transport it anywhere. Unfortunately, there have been instances where Bitcoin can get lost or stolen when people didn't properly follow the ideal practices.
[01:16:21] Bitcoiners regularly cite the Celsius and Blockfi collapses as examples of how important it is to to actually hold your own Bitcoin. With Celsius and Blockfi, people passed the ownership of their Bitcoin to those companies and suffered for it.
[01:16:39] People can lose their private keys. People can irreversibly send Bitcoin to the wrong address. People can keep their Bitcoin on an exchange and that exchange can implode from poorly managing its users funds. People can make mistakes, but foolproof technology cannot.
[01:16:58] That is where multisig comes in.
[01:17:00] As Brian Cubellis, Chief Strategy Officer at onramp, pointed out in the last chapter, multisig protects users from countless Bitcoin disasters that have occurred over the years. With multisig, you are safe Multisig Escrow and Possible Outcomes of a Loan Firefish's collateral structure is the complete opposite of the Trust me Bro model.
[01:17:27] The multisig escrow process keeps the Bitcoin the exact same Nobody can touch it unless authorized.
[01:17:35] Each multisig contract is written to ensure that the funds stay in escrow until certain conditions are met.
[01:17:43] Generally, there are five events in a contract that cause funds to move repayment, default, liquidation, cancellation, and recovery.
[01:17:54] You can find a graphic of the contract branches on page 46 of the PDF from Firefish. This graphic shows four of the possible repayment default, liquidation or recovery.
[01:18:10] For repayment and recovery, the funds return to the borrower. Repayment is what you most likely assume the borrower repays their loan. Recovery, on the other hand, is built into the contract. In the event that Firefish or the platform ceases to exist, the borrower will still be able to recover their funds even if Firefish goes away permanently.
[01:18:34] In the event that the lender never sends the funds to the borrower, the contract is canceled and the collateral goes back to the borrower for default and liquidation, the funds go to the liquidator. The lender.
[01:18:47] Default is when the borrower doesn't repay the loan at maturity and the lender is entitled to collect on the collateral to cover their investment plus interest.
[01:18:56] Liquidation is when the price of Bitcoin falls below the loan to value number. Generally this must be 95% in order to initiate the liquidation process.
[01:19:07] A 95% LTV means that the Bitcoin price fell from being 2 times the loan amount to just above 1.05 times the loan amount.
[01:19:18] Satoshi takes out a $50,000 loan with $100,000 of Bitcoin as collateral. The loan is 50% of the value of his collateral. If the value of Satoshi's bitcoin falls below 52,500 then then his loan is now 95% of the value of his collateral and the liquidation process is triggered. Depending on their preferences, the investor either receives their investment back in fiat currency or Bitcoin.
[01:19:48] Obviously Bitcoin has had multiple drawdowns of 50% or more in its lifespan. Firefish users have the opportunity to top up their collateral as the price of Bitcoin falls. Still, the short term volatility of Bitcoin is built in with the 50% LTV requirement. As always when dealing in Bitcoin, due diligence is strongly recommended.
[01:20:11] Bitcoiners do the due diligence so that others don't do it for them.
[01:20:16] Peer to peer loans under $100,000 on Firefish are classified as peer to peer.
[01:20:25] These are targeted towards individuals. Companies just getting started may also seek these types of loans as they are smaller in both principal and term length. Generally these loans start at $1,000 and have market driven interest rates currently ranging from 6% to 13%. The length can be anywhere from 3 to 18 months. Offering short term cash to support your lifestyle or start your own business without selling your Bitcoin.
[01:20:53] Like all loans on Firefish, These require a 50% LTV ratio meaning the collateral is twice the value of the loan.
[01:21:02] Bitcoin at its heart is a pleb driven monetary system. It just happens to also be the greatest monetary system ever. With that we had to ensure that Firefish worked at scale, borrow or invest at scale.
[01:21:20] Tailored towards high net worth individuals and bigger companies. Firefish allows for larger loans with longer terms.
[01:21:29] This is called Firefish Prime. For Firefish prime, each loan offers specialized customization with up to five year term length.
[01:21:40] Firefish prime members all receive a dedicated account manager specialized to their loan.
[01:21:47] They can also choose to customize their collateral management options. As Brian from Onramp Bitcoin mentioned, there are plenty of ways to use multisig to your advantage.
[01:21:57] Like always with Firefish, these loans are immune to bankruptcy of the marketplace. The bankruptcy remote feature is built into each contract meaning your funds are secure no matter what happens to Firefish.
[01:22:12] The five year maximum term length is also advantageous for both borrowers and lenders who can plan out their finances further in advance, offering predictable structure to their investments.
[01:22:25] Above all, Firefish prime carries institutional grade liquidity meaning that Any significant loans can be met quickly, letting borrowers make the most out of their Bitcoin at any given notice.
[01:22:38] Bitcoin offers near instant payments, so should the loans backed by it.
[01:22:43] There are more and more companies building on Bitcoin with Firefish Prime. They can fund themselves with their Bitcoin without selling their Bitcoin like Braiins has done countless times already.
[01:22:58] Liquidation unfortunately, liquidation is a key part of lending with collateral. It is imperative both as a borrower and an investor to understand the liquidation process in the event it happens.
[01:23:15] Liquidation can happen if the borrower fails to repay their loan, known as defaulting or in traditional liquidation. When the value of the collateral locked reaches a predefined liquidation level due to a decrease in bitcoin price.
[01:23:32] As mentioned, all loans are required to have an initial LTV ratio of 50%.
[01:23:37] The collateral is twice the value of the loan if the LTV ratio rises to 95%, borrowers are faced with a few options. First, they can simply do nothing and let liquidation happen. Their coins would be sold on the open market and funds would go directly to the liquidator. Another option would be to pay back the loan early because of the initial collateral. It's established that the borrower has enough funds to pay back the loan so long as nothing drastically changes financially on their end. If faced with liquidation, the borrower always has the option to simply pay back their loan.
[01:24:16] Lastly, borrowers can top up their collateral. This feature is where a borrower sends additional Bitcoin to the escrow to lower the LTV ratio.
[01:24:26] This can be done at any time, but it's most often done when a margin call approaches.
[01:24:31] Firefish always shows borrowers what their current liquidation price is so they can act accordingly depending on the price of Bitcoin and their personal strategies.
[01:24:42] In order to top up their collateral, borrowers must follow the specific instructions on the Top up Collateral option in the loan actions menu.
[01:24:52] Users have plenty of options to top up their collateral to get their desired LTV ratio as well.
[01:24:57] Once you input your desired top up amount, you are simply directed to the Bitcoin transfer.
[01:25:03] Hit send and your loan is safe. If the borrower who already knows their liquidation price chooses not to top up collateral as liquidation approaches, then the investors have options too. They can choose self liquidation or Firefish Liquidation.
[01:25:19] Self liquidation is where the Bitcoin collateral goes directly to the designated liquidation address. The Bitcoin remains as Bitcoin. Firefish Liquidation the default option is where Firefish sells the Bitcoin on the open market and repays the investor back in their original currency Borrowing against your Bitcoin on Firefish Use referral code Firebook during registration for borrowers to get 30% off the origination fee to their first loan. User guides can be found at Docs Firefish IO Finding a Lender Anyone can borrow on Firefish in order to provide a complete borrowing and investing experience with banking money, Firefish is required to comply with standard KYC AML regulations, so users do need to pass a KYC process.
[01:26:17] On top of that, Firefish aims to ensure security and fraud prevention for both borrowers and investors in the peer to peer relationship, while also safeguarding the integrity of the platform's transactions and operations.
[01:26:31] Identity verification through a KYC process is required for regulatory compliance and secure financial transactions.
[01:26:39] Once you sign up, you can select the Borrow option, then simply post on the Marketplace. Enter your desired loan terms into the menu such as amount to borrow currency, loan period, and preferred interest rate. From there you can see the Loan Request Summary, which does what it summarizes your information.
[01:26:59] With this, you can check your estimated Bitcoin required, which tells you just how much collateral is needed to initiate your loan.
[01:27:07] If everything looks good, then you can submit your request and send it out into the marketplace.
[01:27:14] Then you get matched with whichever investor chooses to accept your request.
[01:27:19] One tool that can help with loan requests is the Loan Marketplace. This shows existing requests, their loan amounts, periods, interest rates, and when they were created.
[01:27:31] From the marketplace, you can get an example of what loans are currently available, then base your requests on that.
[01:27:38] You can also view completed requests made by other users in the marketplace to get a sense of what loan terms are being accepted. You can model your requests off other successful ones.
[01:27:50] It is important to note that the Firefish Loan Marketplace does not list things like names, credit scores, incomes, or anything.
[01:27:58] All you see are the desired loan terms. Bitcoin does not discriminate and neither does Firefish. That is the beauty of the platform. In order to obtain a loan, you technically prepay it so there is little to no default risk for the investors. Bitcoin is the ultimate collateral for both borrowers and lenders.
[01:28:19] Borrowers can send out multiple loan requests at once and they are cancelable at any time. Simply hit cancel when you wish to do so. When a lender agrees to your terms, you'll then have the option to accept the deal and initiate the loan.
[01:28:38] Collateralizing your Bitcoin Once you've found a match for your loan, the next step is to set up the Bitcoin escrow to lock up your collateral and and access your new funds. For this, you must enter your Firefish password, then give a Bitcoin return address.
[01:28:57] This return address is permanent and it is the only place to receive your collateral upon maturation of your loan. From there you simply transfer the Bitcoin. You will see both a QR code and an address. Choose whichever works best for you. When sending your collateral, do not use a Fee Bumping or Replace by Fee feature and also send the amount of Bitcoin displayed in the Bitcoin Amount field. If it says to send 0.98765432 BTC, you must send at least 0.98765432 BTC in order to properly set up the escrow. If you don't, then the loan will not be valid.
[01:29:39] From there, the Oracles verified that everything was done correctly and and initiate the next steps. Once everything is in order, you click Complete Setup and wait. It is then up to the lender to send over your loan directly to your bank account. Once that happens, you confirm that it did and your loan is officially underway.
[01:30:01] Borrowers can refer to their loan cards at any time. Loan cards show all relevant information about the loan such as maturity date, interest rate, collateral, Bitcoin liquidation price, number of days left, amount due, and the loan principal. For additional questions Firefish has a dedicated team of support agents and account managers who are there to help with any questions. They also have a dedicated online community where all Marketplace users can discuss anything pseudonymously. Their Discord community is available here. Discord.com invite KSMG2V533J. You can find the link and details on page 54 of the PDF in case you want to see what other options are available. Once your loan is active, click on the Loan Actions menu. Here you can do several key actions related to your loan. View loan documents Top up collateral Save the recovery transaction as a text file Request early prepayment Add a maturity event to the calendar Firefish loans are fixed term loans, meaning you only repay it upon maturity. Users have the option to repay early. In order to do so, you must request it and get an agreement from your lender. If that is approved, you simply pay back the remaining balance on the loan to the lender via bank transfer.
[01:31:24] This process is the same if the loan is repaid on the maturity date as well.
[01:31:31] Investing your cash on Firefish all detailed information, including user guides and manuals can be found at Docs Firefish IO why invest your fiat on Firefish?
[01:31:47] Much like borrowing, anyone can lend on Firefish. It's actually easier. You don't need Bitcoin and your only role is to send money to the borrower at the start of the deal, then verify the return of your investment upon maturity.
[01:32:02] First, you may wonder why would I want to lend money on this platform? It's a valid question. Besides, you should barely make an investment without putting actual solid thought into it. The number one reason why you should lend money on Firefish is that you can earn solid predictable passive income for your money beating traditional money market instruments like term accounts or Treasuries.
[01:32:27] Additionally, your money is always secured by the borrower who puts up twice the loan amount as collateral, so you are protected as an investor.
[01:32:36] Additionally, you don't need to interact with Bitcoin one single time as a Firefish lender.
[01:32:43] Obviously Firefish are Bitcoin maximalists, but they appreciate others rights to have opinions and freedom to do what they want with their money. They can't force you to use bitcoin, but you can help Bitcoiners use theirs while earning a reward for your generous help.
[01:33:00] Lending on Firefish offers true yield Meaning I can explain in two sentences what the yield is and where the yield on your investment comes from.
[01:33:10] The yield for the investor is the marketplace set interest rate that the borrower will pay on top of the nominal amount of the loan. The yield on a Firefish investment comes from the loan repayment made by the borrower who puts up collateral worth twice the amount of the loan there. Those are two sentences explaining how you make money.
[01:33:31] Even if the price of Bitcoin plummets, you still receive your investment back plus interest.
[01:33:37] Please look at the following hypothetical the price of Bitcoin is $100,000. Satoshi has $50,000 he wants to gain solid yield on in 12 months. He finds a Firefish loan asking for 50k with 12 months terms and 10% interest rate. Satoshi sends the borrower the money, but after six months the price of Bitcoin falls to around 52,700. This activates liquidation. The borrower frustrated, simply lets liquidation happen. Satoshi chose self liquidation on Firefish. So now, after just six months, Satoshi turned $50,000 into a full Bitcoin purchased at roughly a 5% discount.
[01:34:18] In the worst case scenario, investors still come out as winners with Firefish.
[01:34:24] Throughout Bitcoin's history, many people have been quite successful after purchasing Bitcoin on around 50% crashes as long as they stay patient.
[01:34:36] Lastly, with three to 18 month loan periods, you can earn your interest in a relatively short time.
[01:34:44] How to invest on Firefish it's simple. You sign up for Firefish as an investor. Look at the Marketplace, then choose loans you are interested in financing. The Marketplace has a loan requests book which shows all valuable loans with amounts, time periods and interest rates. Simply select the ones you want, then initiate the lending process.
[01:35:09] Even if there are no requests you'd like to match, you can use the Watchdog feature, which works very similarly to the borrowing request feature.
[01:35:18] Enter your preferred loan amount, time period and interest rate and you will be alerted via email when your ideal loan is requested. Talk about passive income Once you find what you're looking for, click Invest now and wait for the borrower to accept.
[01:35:34] When the borrower accepts your offer, they will first send the exact amount of Bitcoin needed, twice as much to protect the lender as collateral to a multisig escrow wallet.
[01:35:45] Once this is done, you send the agreed upon loan amount to their bank account. When the borrower confirms that you sent the funds, the loan activates.
[01:35:55] From there, you wait until the maturity date to receive payment. Occasionally, the borrower may want to repay the loan early. If you're fine with that, you simply accept the offer and get your money back quicker. Or in the unfortunate event of liquidation, you will receive your funds. Depending on what you choose. Firefish Liquidation or Self Liquidation as mentioned earlier, in Firefish liquidation you receive your money back in your bank account in the original currency you lent. This is the default setting. In self liquidation, you input a Bitcoin wallet address at the start of the loan and you will automatically receive the funds there. This liquidation address cannot be changed for the duration of the loan. If the loan does get repaid on time and you simply confirm that it was and receive your yield. It's as simple as this. Choose a loan to invest in, transfer the funds, earn interest, then redeem it or reinvest it on Firefish, it's up to you.
[01:36:57] Peer to Peer Loans we are Human Like Firefish CEO Martin Matejka said in his forward, we are human.
[01:37:09] We need certain things to live. We need certain other things to live well.
[01:37:14] These necessities often require money. In a given week you can spend money on food, housing, fuel, electricity, public transportation and many other essentials. You may also spend money on your hobbies, golf, the gym, drinks with friends, yoga class, travel. It's your money. If you enjoy something, do it.
[01:37:34] Bitcoiners are allowed to buy things other than Bitcoin. Money is a technology.
[01:37:40] Spending it is one of its key purposes.
[01:37:43] Most of what we buy is with a credit card. Anyhow a piece of plastic or metal lets you walk into a store and walk out with nearly anything legally. When you use a credit card, you essentially take out a very short term loan and hopefully pay it back with zero interest.
[01:38:00] However, you cannot buy everything with a credit card. In fact, credit cards carry frustrating 3% transaction fees wherever you go, and often these fees are pushed onto the consumer via passive aggressive signs mentioning a credit card surcharge.
[01:38:15] Despite this, paying with a credit card and properly allocating your money elsewhere is smart so long as you can make your monthly payments. Again, we are incentivized to hold as little fiat as possible, so why not do this on a grander scale? Why not take out slightly longer loans before actually buying anything?
[01:38:37] Well, as we've established, traditional loans can be frustrating, time consuming and difficult to obtain. Especially if you mention the word Bitcoin just one time Get a loan from someone Regularly. You hear success stories of how massive companies started humbly in a garage thanks to a loan from the founder's parents. In 1994, Jeff Bezos was given $245,573 from his parents to start Amazon. It's funny to imagine how crazy someone must be to build an Internet company at a time when hardly anyone used the Internet. Are there any applicable comparisons from the Internet age to today?
[01:39:18] Still, it is unlikely and unfair to assume that everyone's parents can give them a quarter of a million dollars.
[01:39:24] Thankfully, there exists a platform that lets you get loans from anyone.
[01:39:29] Get a loan from someone on Firefish On Firefish Bitcoiners can realistically fund their lifestyles through peer to peer lending. As mentioned, borrowers can take out multiple loans at once so long as they have the collateral. Bitcoiners can live off their bitcoin while not selling their bitcoin. Again. Debt is not a bad thing, especially when your liabilities are designed to get less valuable over time.
[01:39:55] That just means your debt gets easier to pay off. It's impressive to have recognized a perfect digital money. It is frustrating to be locked out of your hoard of digital gold.
[01:40:06] Bitcoiners often joke about having low quality clothes, living in a dirt cheap apartment, or eating ramen noodles just to buy more bitcoin. Now there's a way for you to live according to your wealth in Bitcoin without having to sell it.
[01:40:20] On the alternative, you can trade the best money ever created for fiat currencies, pay taxes on any gains you may have had, and spend what you have left on what you want. In other words, you can have your Bitcoin and use it too How Companies Can Collateralize Bitcoin for Growth By Wyatt o' Rourke Basilic Founder and CEO Basilic is a wealth management firm that offers clients investment strategies with a Bitcoin centric lens. Nothing in this chapter constitutes financial advice. Please read Wyatt o' Rourke's full disclaimer online.
[01:41:01] As you may have noticed by now, we think very highly of Bitcoin as collateral. In fact, it is often referred to as pristine collateral in the industry because of its unique aspects. Previously mentioned, having pristine anything is a pretty good gig, especially if you are a well run business interested in growing and investing in the future.
[01:41:21] Owning Bitcoin as a business gives you a ton of financial flexibility. There is no second best Businesses need to access liquidity for several reasons. Whether it is paying fiat denominated bills, compensating employees or servicing debt, the list goes on.
[01:41:40] This chapter will highlight how large publicly traded companies, medium private companies and small startups businesses can use Bitcoin as collateral to access liquidity secure loans and issue bonds. Additionally, we will explore the unique advantages and disadvantages inherent in each business size Sources of Liquidity A business has Bitcoin on its balance sheet. Great.
[01:42:07] Now how do they get cash?
[01:42:10] Traditional financial institutions or tradfi companies can pledge their Bitcoin as collateral to traditional banks and financial institutions to secure loans. Legacy institutions like Goldman Sachs have allowed borrowers to use Bitcoin as collateral for a cash loan and this practice is only expected to continue growing. In this setup, you should expect all of your usual big bank requirements, KYC, CPA, audited financial statements, slow disclosures and 800 page contracts, etc. While these institutions may be attractive given their deep access to capital, you should anticipate a much more conservative fiat approach to the asset class.
[01:42:50] Additionally, tradfi institutions are by far the most heavily regulated, which will likely guarantee a higher legal bill and add complexity to the deal.
[01:42:59] Borrowers will need to explore how their Bitcoin will be custodied, ensure systems are in place to prevent their Bitcoin from being rehypothecated and obtain the public address for the wallet where their Bitcoin collateral is being held. While many of these institutions may leave a sour taste, and rightfully so in many bitcoiners mouths, this signifies a massive step forward for Bitcoin's maturity and robustness. These institutions have tremendous amounts of capital, large customer bases and deep knowledge of financial markets. All these aspects help not only Bitcoin the asset, but also Bitcoin the network Bitcoin Lending platforms CEFI or DEFI businesses can also pledge their Bitcoin as collateral with bitcoin lending platforms and receive dollars in return.
[01:43:50] While these businesses are still relatively new compared to their tradfi counterparts, while their age does not diminish the quality of services they have developed, many companies like Firefish, on Ramp, Kraken and Galaxy Digital were built specifically to service Bitcoin customers.
[01:44:08] These institutions have a robust understanding of the asset, network and technology.
[01:44:14] They have made the properties of Bitcoin and the Bitcoin ethos like verifiability, multisig and zero rehypothecation inherent in their offerings. These companies tend to be more flexible and can process new business quicker than their tradfi competitors. Additionally, many bitcoin lending platforms have innovated on traditional lending mechanics. Some offer the ability for the borrower to receive cryptocurrency as liquidity, which can be advantageous for a borrower looking to bypass standard KYC practices or the USD Rails.
[01:44:46] Some even offer peer to peer marketplaces that where borrowers don't need to interact with a centralized authority but rather with individual market participants themselves. Now that is very Bitcoin.
[01:45:00] My hypothesis Just as cloud native computing had a significant advantage over legacy IT systems In the early 2000s, multisig native companies will hold a substantial edge over traditional third party custody services in the 2000 and 20s and beyond Bitcoin Lending Protocols the newest way for companies to use their Bitcoin as collateral to gain access to liquidity is through DEFI lending protocols. Loans are issued by decentralized applications and networks which are powered by code and smart contracts rather than traditional companies.
[01:45:40] While some organizations may be involved, these systems are primarily autonomous, offering a more automated and trustless lending service.
[01:45:49] Companies like Zest and Fuji have taken advantage of Bitcoin's scalability by creating lending protocols on layer two.
[01:45:56] These protocols use Bitcoin's discrete log contracts or DLCs. DLCs, first introduced by Taj Drija, co author of the Lightning Network Whitepaper, are a type of smart contract for Bitcoin.
[01:46:08] Essentially, DLCs allow parties to make conditional agreements such as bets, but their potential extends far beyond this, enabling a wide range of financial instruments to be created on Bitcoin's network.
[01:46:21] Borrowers that decide to use a DEFI protocol as a loan mechanism should expect an experience vastly different from getting a loan from a traditional financial institution. These protocols are trustless the counterparty is often unknown. Liquidity can be offered in an array of assets. There are far fewer regulations, no consumer protection and more advanced technical skills are required. Strict due diligence should be conducted on any projects and sidechains so you don't get rugged Types of Liquidity Loans before securing a loan, borrowers must understand the collateral management process, loan eligibility criteria, potential loan default consequences, and available refinancing options.
[01:47:09] Now that we know how to access liquidity and who we can get it from, let's review the types of loans businesses can receive when they use their Bitcoin as collateral. The mechanism for these types of loans will vary depending on who, where and how you decide to get your liquidity. However, for the sake of this exercise, let's assume the process is more or less the same across liquidity providers.
[01:47:32] 1. Borrower finds a source of liquidity. 2. Borrower applies or agrees to terms for a loan. 3. Borrower deposits Bitcoin into a wallet. 4. Lending platform or protocol determines the LTV ratio.
[01:47:47] 5. The lender gets their cash upon arrival or consensus mechanism. 6. Borrower pays back the loan on a predetermined schedule and method.
[01:47:57] Loan Options General Business Loans Company Size Profile all companies use liquidity for expansion or operational costs usually intended for a specific project or instance.
[01:48:12] Lines of Credit Company Size Profile all purpose use revolving lines of credit for day to day spending needs generally as ongoing borrowing solutions.
[01:48:23] Margin Loans Company Size Profile Big and medium businesses use these loans in financial markets to trade, invest and or buy more Bitcoin. Typically these loans are used opportunistically depending on market conditions.
[01:48:40] Bridge Loans Company Size Profile all businesses need financing to cover gaps in cash flow.
[01:48:49] These types of loans are usually used in one off scenarios.
[01:48:54] Bonds Another option companies have to use their Bitcoin as collateral to access liquidity is to issue bonds. As you'll read in the brains case study later on, this may be a particularly intriguing option for companies that are Bitcoin rich and cash poor. The mechanism for issuing bonds typically aligns with tradfi specialties and institutions.
[01:49:18] The process looks something like one. The company pledges a specific amount of Bitcoin as collateral for the bond. 2. The company issues bonds to investors guaranteeing that the Bitcoin is held in reserve to secure the bond.
[01:49:33] 3. Investors purchase the bonds knowing that they are secured by the underlying Bitcoin. 4. If the company defaults, bondholders have a claim to the Bitcoin collateral reducing their risk exposure.
[01:49:47] While specific regulations may vary across jurisdictions, a bond, unlike a loan, is a security.
[01:49:54] Bitcoin bond issuers must follow the laws and regulations of their local jurisdictions as they pertain to issuing and selling securities to investors. They will also likely lean on the expertise of traditional financial institutions and their access or reputation to bring their bonds to market.
[01:50:12] Bond Secured Bonds Company Big and Medium these are bonds backed by Bitcoin as collateral. In the event of default, bond holders have the right to claim the Bitcoin convertible bonds.
[01:50:30] Company Profile Big and Medium Convertible bonds can be converted into shares of the issuing company under certain conditions.
[01:50:39] When Bitcoin is used as collateral, the bondholder is doubly protected as they can either convert the bond into equity or claim the Bitcoin in case of default.
[01:50:49] Debenture Bonds Unsecured but Bitcoin Backed Company Profile Big and Medium Definition While debenture bonds are typically unsecured, companies can use Bitcoin as a collateral layer, which makes them more appealing than traditional debentures.
[01:51:06] These bonds wouldn't typically be tied to physical assets, but would rely on Bitcoin reserves.
[01:51:13] Bitcoin Collateral Use Cases by Business Size Large companies Public companies Companies with vast resources are inherently capable of capitalizing on any opportunity that comes their way. Bitcoin is no exception. In fact, there are many modern day examples of public companies using Bitcoin to bolster their balance sheets.
[01:51:35] These titans of industry are pioneering the finance and Bitcoin industries in real time. The trailblazer of this strategy is without a doubt MicroStrategy. We provide a more detailed breakdown of MicroStrategy's methods later on. The very nature of a public company means they have unique access to capital markets that private companies do not. This typically means they are relatively credit worthy because they have liquid assets, cash flows and professional finance teams. This gives them tremendous opportunities to access liquidity via Bitcoin collateralization.
[01:52:10] Public companies also tend to be attractive customers for other types of businesses. Investment banks, capital pools and exchanges may actively seek the issuer's or borrower's business rather than the other way around.
[01:52:24] Additionally, a bond issued or a loan secured from or to a public company is is likely to be more attractive to market participants.
[01:52:34] Medium companies or private companies.
[01:52:38] Private companies have an array of options and opportunities to leverage Bitcoin as collateral. Although their size and success may vary, they are likely excellent customers for traditional financial institutions, lending platforms, secondary off market deals and Bitcoin lending protocols. These businesses tend to be highly specialized and flexible, enabling them to make swift decisions. They often have enough size and resources to negotiate better deals with lenders or issuers. Additionally, these companies face less regulation than public companies, making it easier to execute and iterate on Bitcoin collateral structures lastly, many private companies could certainly go public but choose not to. Why?
[01:53:20] Because they value the benefits of remaining private.
[01:53:23] Having an abundance of pristine collateral in their balance sheet gives them tremendous flexibility and empowers them to stay private.
[01:53:31] Using Bitcoin as collateral allows these companies to protect their control of the business, which is ultimately what they value most.
[01:53:41] Small Companies or Startups Bitcoin has often been referred to as permanent capital, a term that succinctly highlights the long term durability and value protection features of the asset. Permanent capital is crucial, especially for startup companies.
[01:54:00] Startups operating on a Bitcoin standard are more inclined to pursue projects that offer stable long term returns. This shift from high risk speculation to sustainable ventures creates a healthier business environment with less emphasis on short term gains.
[01:54:17] Bitcoin frees startups from the ZIRP era, VC games of vanity metrics and the chase for fundraising rounds. If Bitcoin provides this type of freedom, startups should strive to retain it while still investing in growth.
[01:54:31] Bitcoin collateralized loans are the ideal option. Startups are particularly well suited to take on debt backed by Bitcoin for the following reasons.
[01:54:43] Low Credit Rating Given the risk, financial situation and infancy of startups, they tend to have lower credit ratings. You don't need a credit rating to get a Bitcoin loan if you have the Bitcoin.
[01:54:54] Access to Capital of all types of companies, startups have the hardest time accessing capital. The P2P nature of Bitcoin collateralized lending platforms allows startups to tap into a global network of liquidity providers.
[01:55:09] Ownership Retention during the startup phase of a business's life cycle, preserving equity ownership is crucial. Bitcoin backed loans allow startups to get access to capital without having to give up equity.
[01:55:24] Everything is good for Bitcoin.
[01:55:28] I usually use the word financialization in a negative context. However, in this particular case, deeper capital markets are simply a function of capitalism. Two parties can each take a side of a trade and that trade can then be multiplied into more trades, with market participants determining for themselves which side of the new trade they would like to be on. Now, you may be getting flashbacks from the movie the Big Short and your gut tells you this is a bad thing. You aren't necessarily wrong. However, in the crony capitalist setting that movie depicted, yes, some skewed incentives were created and bad things happened. But when dealing with a pristine, unmanipulated asset like Bitcoin in a truly free market, participants benefit from more options. For example, Bild Asset Management is packing Bitcoin loans and selling them in a private credit fund.
[01:56:22] The Build Secured Income Fund one or the fund invest its capital in US Dollar denominated commercial loans secured by a borrower's Bitcoin. Like many private credit funds, the fund invests in secured loans made to small and medium sized businesses that typically fall below the threshold for public debt markets or loan syndication. However, in contrast to the typical assets used to secure loans in the private credit industry, such as real estate, working capital or property, plant and equipment, the fund distinctly prefers Bitcoin as a backstop in the asset based lending model.
[01:57:00] The maturation of the Bitcoin ecosystem will result in new financial products. These products will help strengthen Bitcoin's value proposition, adding liquidity, diversification, financial flexibility and much more to the industry.
[01:57:14] I challenge you as the reader to embrace some financialization as it leads to deep, rich markets and ultimately more choice for market participants.
[01:57:28] Braiins Leveraging and Collateralizing Bitcoin By Elie Nagar Braiins, CEO A Bitcoin company in a tradfi world Let me start this chapter by emphasizing that braiins has earned 100% of its revenues in Bitcoin since 2010.
[01:57:49] We always have been committed to simplifying the mining process and we will never deviate from that.
[01:57:55] Bitcoin maximalism is a fundamental part of our company's identity.
[01:58:00] For this reason, we choose to secure several million dollars in loans against our Bitcoin to fund our growth while keeping our Bitcoin, which continued to appreciate on our balance sheet.
[01:58:12] As the creators of the very first mining pool, we've successfully mined more than 1.3 million bitcoins. We've played a key role in improving mining software, including the development of Stratum v2, Braiins OS, Braiins Manager, and several other solutions. This deep knowledge, combined with our passion, fuels our commitment to advancing Bitcoin and by extension, shaping the future of global finance.
[01:58:40] We are Bitcoin Maxis. We inherently believe that Bitcoin will substantially appreciate over time. A key part of our strategy is to prioritize holding Bitcoin on our balance sheet to maximize the value of our company.
[01:58:54] We are committed to holding Bitcoin without exception, regardless of external factors. This principle is core to our identity as a company. We prioritize Bitcoin over fiat and will take every measure to uphold this standard. The day we can run our accounting in Bitcoin, we will.
[01:59:13] For now, we must continue to function within the fiat framework.
[01:59:17] Still, we recognize Bitcoin as the ultimate monetary tool. We regularly make payments in Bitcoin for sponsorships, events and even to our employees who love the option of being paid in Bitcoin. Unfortunately, the world is not yet on a Bitcoin standard. Some people need fiat to pay their everyday bills. So do companies.
[01:59:38] Wanting to adhere to our beliefs that Bitcoin will grow in value indefinitely and that we would never sell. We knew the next step would be to leverage our stack and collateralize it to fund our operations, growth and new hardware and software ventures.
[01:59:56] How to move forward collateralizing with the ultimate collateral?
[02:00:02] Our question was in front of us, how do we fund our company's growth and success without sacrificing our beliefs?
[02:00:11] Borrowing was the obvious next step forward.
[02:00:14] Bitcoin is a monetary tool, the greatest monetary tool ever. We knew we must leverage what we had to position ourselves for success.
[02:00:24] We realized we can use our stack to secure loans and our strategies would produce new revenue streams.
[02:00:31] This new income, combined with our Bitcoin holdings, assures the issuer that we can repay our debt. We had difficulty finding a tradfi partner willing to offer us a loan, mainly because Bitcoin was a new and unfamiliar technology and asset class. Without knowing how to handle it, they refused to work with us.
[02:00:50] As a result, we chose an alternative issuing corporate bonds.
[02:00:55] Here, Bitcoin doesn't officially serve as collateral. Our reputation and Bitcoin on our balance sheet does. Our reputation is built on being Bitcoin maximalists who will perpetually hodl confident that our stack will continue to grow.
[02:01:10] Bonds are essentially loans. So in the case of bankruptcy, those who buy our bonds get paid back first. Our Bitcoin indirectly serves as collateral for them. Thankfully, our fantastic customers and fans are also aware of this. It was they not traditional financial institutions who purchased our bonds. It perfectly illustrated the free market at its best.
[02:01:34] Eventually the tradfi sector will catch up to our supporters, but for now we are incredibly grateful for our brains fans out there. With Multiple Bitcoin spot ETFs in today's market, we feel Bitcoin collateralization in the traditional financial sector is imminent.
[02:01:51] We didn't want to limit ourselves to corporate bonds alone. We wanted to explore additional funding options to expand and build our new Braiins hardware division, which is an extremely capital intensive endeavor. We looked for as many ways as possible to collateralize our coins. We had to delve into the crypto realm for some loans. They may not have been Bitcoin only, but they knew Bitcoin was king and the ultimate collateral. Unfortunately, this was more difficult to use. Plus it required trust.
[02:02:21] Bitcoin does not equal trust. We had no choice but to trust that we would get our Bitcoin back and that the coins we get back aren't tainted or traceable to any wrongdoings. Part of the beauty of having the oldest mining pool is that all of our Bitcoin is brand new. Some people put a premium on that fresh Bitcoin. These two lending options were not perfect.
[02:02:43] They still helped brains remain who we are and grow at the same time with bonds. They are less expensive for us, but they are a slower method of obtaining cash.
[02:02:54] Collateralization, on the other hand, was more expensive for us, but faster still. We did not want to regularly send our Bitcoin elsewhere to fund our operations. There is still an inherent risk of the lender mismanaging our coins before we repay the loan.
[02:03:10] Eventually, we found an option that we preferred, the Firefish.
[02:03:14] The locked collateral option was unequivocally the best path forward for us. When your Bitcoin is sent to other companies as collateral, you lose a bit of security.
[02:03:25] When you lock your Bitcoin in multisig custody through Firefish, you know coins are yours, you know you can track them, and you know exactly what you'll get back.
[02:03:35] The only trust required here is trust in the Bitcoin protocol.
[02:03:40] We trust Firefish and we trust their platform will show others the true potential of Bitcoin as collateral.
[02:03:48] Dealing with liquidation, price swings and more.
[02:03:52] It's easy to say you will collateralize Bitcoin knowing you won't have to sell. But there's still the ever looming L word, liquidation.
[02:04:02] Thankfully, Braiins has never been liquidated. Throughout our history of leveraging our Bitcoin, there have been close calls. Though the price of Bitcoin can move drastically at any time, keeping us liable for our debt around the clock. It doesn't matter what day or time it is. If a lender tells us we have 12 hours to add our collateral or close out the loan, we must act.
[02:04:26] Andre Seifert, Brain's cfo, said that the first time this happened, his hands would not stop shaking and shivers shot through his entire body. We smartly dealt with our loans to always be able to add our collateral in the event of a price drop. After a while, he became numb to the swings. In all seriousness, communication and preparation are key. If you aren't readily available to assure your lender that that your funds are secure, they will do what's best for them. Liquidate you, which will cost you.
[02:04:59] You must be ready to respond to market downturns. Bitcoin doesn't Always move upward. Patience is key. There will be times when you're asked to top up with 0.5 bitcoin, then 1 bitcoin and eventually 5 bitcoin. When you're confident you have the necessary funds, you can calmly request.
[02:05:20] Please inform us when payment is due. We want to avoid liquidation and just need the exact amount to send.
[02:05:28] At times, the price can shoot right back up and you might have missed the entire fluctuation while you were asleep. We've never faced liquidation because we maintain constant communication and always ensure we have ample reserves on hand. We also structured the loans with buffers for these scenarios. A liquidation scenario won't happen unless there is a significant price crash, which you have to keep in mind when funding yourself this way.
[02:05:54] Obviously, Bitcoin is known to appreciate in price from time to time. This certainly has its benefits when it serves as your collateral. Occasionally, we'll go to our lenders and politely ask them to send some of our bitcoin back home during those incredible bull runs. Still, bull runs come and go. Our debt obligations are ever present. It's crucial to keep a level head during the bad and the good to stay prepared in the ever changing world of Bitcoin. If you're a company collateralizing its Bitcoin to fund operations, don't leverage what you can't cover and never think you're out of the woods. So long as you owe money, you must be prepared to pay it. Fiat. You can lose, but Bitcoin is precious. It must be treated as such.
[02:06:42] Collateral for Bitcoin Miners what do Bitcoin Miners do?
[02:06:49] To start this chapter, it will be helpful to know what exactly Bitcoin miners do.
[02:06:55] They are not solving complex math problems. Read about that in Brain's Bitcoin Mining Handbook.
[02:07:02] They Bitcoin miners create new Bitcoin by finding blocks and getting rewarded for doing so with brand new Bitcoin. In order to efficiently mine, Bitcoin miners require specialized computers called ASICs which require a lot of electricity.
[02:07:19] So the real math problem Bitcoin miners attempt to solve is making sure their bitcoin revenue beats their electricity costs.
[02:07:28] All across the world, millions of asics work together in competition to secure the bitcoin network. Trying to guess the correct hash and find blocks to pay their electricity bills and create profit for the person, people or company running them.
[02:07:45] As we discussed, Bitcoin is predictable. Therefore, so is bitcoin mining revenue to some extent.
[02:07:52] Roughly every four years, the reward for finding a block is gets completely cut in half until there's nothing left but transaction fees.
[02:08:01] Miners are perpetually preparing for the halving.
[02:08:04] There are other key factors that drive their decisions, such as network hash, rate and difficulty. More detailed information on that can be found in Brain's Bitcoin Mining Economics book.
[02:08:16] At the end of the day, large scale bitcoin mining is extremely cutthroat, with the industry's main economic drivers changing regularly.
[02:08:26] It's called proof of work for a reason.
[02:08:31] This constant challenge is a good thing. It strengthens the bitcoin network and makes it harder to attack.
[02:08:38] Like most American high school football coaches say, if it were easy, everyone would do it. It is hard to obtain low electricity rates on long term power purchase agreements. It is hard to acquire hundreds or thousands of asics with competitive pricing.
[02:08:55] It is hard to build massive data centers. It is hard to rack miners efficiently with proper cooling setups. It is hard to configure them and pair them with the optimal mining software. It is hard to physically wire and activate every machine at a facility. It is hard to maintain your regular electricity bills and come up with the fiat to pay them.
[02:09:16] If all of this were easy, if you could simply stake your coins and somehow receive payment for doing that, Bitcoin would be more centralized, much less secure, and require much more trust.
[02:09:29] Doing hard things can pay off in the long run.
[02:09:33] Arguably, the hardest part of bitcoin mining is paying your electricity bill. Tragically, this often requires the sale of Bitcoin, a lot of it.
[02:09:45] Electricity bills are paid in fiat.
[02:09:49] Bitcoin mining revenues are measured in Bitcoin. Bitcoin mining expenses, however, are paid in fiat. There is so much that goes into an efficient mining operation. Buying the right machines, installing the right infrastructure, paying the right employees to set up and monitor everything.
[02:10:08] All of this is done in fiat. The bigger the scale of your mining operation, the more fiat you need.
[02:10:16] So how do you pay in fiat when you only have Bitcoin?
[02:10:21] You can sell or you can collateralize.
[02:10:24] Bitcoin miners provide bitcoin users with the most secure computer network in the world. Unfortunately, they happen to also be the biggest sellers of bitcoin.
[02:10:34] As we've discussed, banks can be difficult to work with when it comes to collateralizing bitcoin. This leaves miners with few options and they often choose to sell some of their Bitcoin to fund operations.
[02:10:46] The biggest bitcoin miners all sell their Bitcoin. In fact, selling Bitcoin is a key factor in their business operations.
[02:10:54] Go through any public mining company's annual report and you will find it mentioned.
[02:10:59] Below are some quotes from various miners 10k reports with a loose translation into regular speak Riot Platforms Inc.
[02:11:09] 2023 10K Page 41 Revenue from operations Our ability to realize revenue through Bitcoin production and successfully convert Bitcoin into cash or fund overhead with Bitcoin is subject to a number of risks, including regulatory, financial and business risks, many of which are beyond our control.
[02:11:30] End quote Selling Bitcoin to fund our operations can be extremely troublesome and we do not like doing it.
[02:11:38] CleanSpark Incorporated 2023 10K page 25 risks related to Our Business we sell our Bitcoins to pay for operating expenses and growth on an as needed basis. Consequently, we may sell our Bitcoins at a time when Bitcoin prices are low which could adversely affect an investment in us, End quote Or in other words, selling Bitcoin, especially when it loses its value, shows weakness and lack of conviction in the asset to investors. We don't like doing it.
[02:12:10] Marathon Digital Holdings Incorporated 2023 10K Page 17 risks related to Our Business the sale of our digital assets to pay expenses at a time of low digital asset prices could adversely affect an investment in our securities. We may sell our digital assets to pay expenses on an as needed basis irrespective of then current prices.
[02:12:35] Or in other words, we must sell Bitcoin regularly and we are especially upset when we sell Bitcoin that has dropped in value. We don't like doing it because we think Bitcoin will grow so we want as much of it as possible.
[02:12:49] Core Scientific Inc.
[02:12:51] 2023 10K Page 26 risks related to the Price of Bitcoin if the reward of new digital assets for mining declines and or if transaction fees are not sufficiently high, profit margins for mining operators may be reduced and such operators may be more likely to sell a higher percentage of their digital assets. Whereas it is believed that individual operators in past years were more likely to hold digital assets for more extended periods, the immediate selling of newly transacted digital assets by operators may increase the supply of such digital assets on the applicable exchange market, which could create downward pressure on the price of the digital assets and in turn could have a material adverse effect on our business, financial condition and results of operations, end quote.
[02:13:36] In other words, when Bitcoin is less valuable we have to sell more of it, which sucks. Individual miners usually don't have to sell because they operate on a much smaller scale than us. Also, when we sell, we sell so much that it drives Bitcoin's price down, making the rest of our stack less valuable.
[02:13:53] There are Many others that say essentially the same thing. Ask any public miners CEO and CFO and they'll tell you selling Bitcoin is the least favorite part of their business. They wouldn't exist if they weren't true believers in bitcoin. So selling it drives them crazy. What can they do instead?
[02:14:15] A better plan.
[02:14:17] Build a treasury, then collateralize.
[02:14:22] Some of these 10Ks mentioned that they do not love issuing new shares of stock to fund their operations as that dilutes previous shareholders shares in the company.
[02:14:32] That's fair. Their duty is to the current shareholders. Issuing new equity may not be the best way to avoid selling bitcoin. So what about debt?
[02:14:42] All public bitcoin miners are long bitcoin. They exist purely to create and hold as much Bitcoin as possible, knowing their shareholders will benefit from Bitcoin's inevitable growth.
[02:14:54] On Mara's 2023 10K, they reported roughly 357 million in cash and 640 million in digital assets.
[02:15:06] On their balance sheet they carried long term notes payable worth 326 million.
[02:15:12] Accordingly, they paid roughly 236 million in operating expenses.
[02:15:18] In 2023, Mara sold $264.9 million worth of Bitcoin.
[02:15:26] Mara had over a billion dollars of current assets, no significant debt. Yet they still sold that much bitcoin. You cannot pay electricity bills in bitcoin and miners must fund their operations somehow.
[02:15:42] This was their best option. On July 25, 2024, Mara announced that they were adopting a full HODL strategy regarding Bitcoin. They announced they were done selling Bitcoin and would even begin making strategic open market purchases.
[02:15:59] Then, not even a month later, on August 14, 2024, Mara announced that they had offered $300 million in convertible senior notes and bought $249 million of Bitcoin. It clearly hurt selling all that bitcoin. A year before, Mara wanted to make a statement about their belief in bitcoin. So they took out debt and then bought more bitcoin. With that debt, even the biggest miner in the world knew they didn't have enough bitcoin.
[02:16:29] No one ever has enough bitcoin.
[02:16:33] So Mara, who owned a significant amount of bitcoin, collateralized that bitcoin to get money and in turn bought more bitcoin.
[02:16:43] Who has done that before?
[02:16:48] Collateral. For bitcoin companies, there is no second best.
[02:16:54] On August 11, 2020, the world of Bitcoin changed forever.
[02:16:59] COVID lockdowns were at their peak. The only thing certain was uncertainty.
[02:17:05] Bitcoin thrives in times of uncertainty. In the past five months, Bitcoin had surged from $4,805 to $11,899, over a 147% gain.
[02:17:20] People were beginning to notice this Bitcoin thing is coming back.
[02:17:25] The money printer was burring, and the price reacted accordingly. Companies noticed too.
[02:17:32] Big companies.
[02:17:34] MicroStrategy, whose market capitalization was roughly $1.2 billion, announced a new strategy. Bitcoin would serve as its primary treasury reserve asset.
[02:17:46] They shared that they had purchased 21,454 bitcoins for a total purchase price of $250 million, just under 25% of their total value.
[02:17:59] Michael Saylor, chairman and CEO of MicroStrategy, offered the following justification for the Bitcoin strategy in a press.
[02:18:09] MicroStrategy spent months deliberating to determine our capital allocation strategy. Our decision to invest in Bitcoin at this time was driven in part by a confluence of macro factors affecting the economic and business landscape that we believe is creating long term risks for our Corporate treasury program, risks that should be addressed proactively.
[02:18:28] These macro factors include, among other things, the economic and public health crisis precipitated by COVID 19, the unprecedented government financial stimulus measures, including quantitative easing adopted around the world, and global political and economic uncertainty. We believe that together these and other factors may well have a significant depreciating effect on the long term real value of fiat currencies and many other conventional asset types, including many of the assets traditionally held as part of corporate treasury operations. We find the global acceptance, brand recognition, ecosystem vitality, network dominance, architectural resilience, technical utility and community ethos of Bitcoin to be persuasive evidence of its superiority as an asset class. For those seeking a long term store of value, Bitcoin is digital gold, harder, stronger, faster and smarter than any money that has preceded it. We expect its value to accrete with advances in technology, expanding adoption, and the network effect that has fueled the rise of so many category killers in modern era.
[02:19:33] Here is a bitcoinized translation of that quote.
[02:19:37] The dollar is designed to go to zero over time and world governments have no idea what they're doing financially. Bitcoin is our exit Strategy.
[02:19:47] Since then, MicroStrategy has accumulated over 1% of Bitcoin and their stock has grown with it.
[02:19:54] Still, how does a software company whose direct business has nothing to do with Bitcoin purchase 1% of Bitcoin?
[02:20:03] They had unwavering faith and they collateralized their stack multiple times.
[02:20:09] The first time they used leverage to purchase More bitcoin was in December 2020, just four months after their initial purchase of 21,454 bitcoin. They too thought they did not have enough Bitcoin. On December 7, 2020, MicroStrategy announced a proposal of $400 million in convertible senior notes.
[02:20:31] Their stock price had more than doubled since their initial purchase, trading at roughly $33 compared to 13 in August that year. So their purchase of Bitcoin made them more valuable as a company. And with that value, they took on convertible senior notes and finally purchased more Bitcoin.
[02:20:49] They built this pattern four months after their first purchase. From February 2021 to August 2024, they issued debt seven times to purchase Bitcoin.
[02:21:02] February 19, 2021 $1.05 billion of convertible notes at 0% coupon. These notes had a 50% conversion premium.
[02:21:14] June 8, 2021 $500 million of senior secured notes.
[02:21:20] March 29, 2022 $205 million worth of Bitcoin. Collateralized loan with Silvergate bank to Purchase more Bitcoin.
[02:21:30] March 11, 2024 $800 million of convertible senior notes.
[02:21:35] March 13, 2024 $500 million of convertible senior notes. March 19, 2024 $603.75 million of convertible senior notes.
[02:21:49] June 20, 2024 $800 million of convertible Senior notes.
[02:21:55] For many of these loans, their interest rate was under 1% with semi annual payments. Essentially, the banks gave them free Bitcoin in exchange for the opportunity to convert their bonds into MicroStrategy shares. When Bitcoin's price would soar, so would MicroStrategy's stock. Traditional fiat investment houses with no proper channels to legally hold Bitcoin found MicroStrategy as a fine alternative. So MicroStrategy would buy Bitcoin, gain stock value, take out a loan with increased value in Bitcoin treasury as collateral, then buy more Bitcoin. It puts the recycling logo into a whole new perspective.
[02:22:38] Buy Bitcoin, Bitcoin and stock price increase. Collateralize with newly added value by Bitcoin.
[02:22:46] The formula has been proven.
[02:22:50] So there exists a reliable formula for leveraging Bitcoin as a Treasury asset to acquire more Bitcoin as a Treasury asset.
[02:23:00] Obviously, it goes without saying that any type of leveraging with Bitcoin should be done in a cautious manner. Be sure to have more in reserves than what you put up as collateral. You never know when a price dip will occur, so it's best to be prepared for any alternative.
[02:23:16] Still, countless companies operate in such a way that they're required to own Bitcoin miners, exchanges, wallet designers, lightning network developers, etc. It's impossible for every Bitcoin company to own 1% of the supply like Microstrategy. But why shouldn't they begin holding the orange coin in their treasury?
[02:23:38] There is a proven record of buying and collateralizing Bitcoin to acquire more Bitcoin, allowing a company to grow without needing to dilute investors.
[02:23:48] Now there's a platform Firefish that thrives on setting up business loans with collateralized Bitcoin.
[02:23:55] Again, it is important to mention companies should not be making rash financial decisions with the best financial tool of all time.
[02:24:04] They should be taking smart inventory of what they have, how they can leverage it properly and when they should do it. When it's done correctly, with plenty of reserves to securely top off their collateral at a moment's notice, it can do wonders for businesses.
[02:24:21] On the website bitcointreasuries.net, you can see that there are dozens of publicly traded companies that hold Bitcoin and multiple large private companies that hold Bitcoin.
[02:24:31] Game theory suggests that more and more companies will add Bitcoin to their treasury and collateralize it, though it's impossible to predict to what extent that will happen.
[02:24:41] Smart business leaders, however, will learn from others and do their best to emulate the successful examples of an orange corporate treasury. Or they can get left behind.
[02:24:53] It's their choice.
[02:24:54] Bitcoin is the ultimate collateral.
[02:24:58] The best companies, public or private, will take advantage of this and fund their new operations to revolutionize this already revolutionary technology.
[02:25:09] The world has a bright orange future ahead, with people and businesses smartly collateralizing their SATs to succeed.
[02:25:19] The Future of Bitcoin as Collateral Everyday Collateral for Everyday Use as we mentioned earlier, credit cards are as common today as anything. The digital aspect of them is incredibly useful. You no longer have to carry cash and it's much easier to track your spending.
[02:25:40] There was a time when everybody would carry cash, buy things, then keep the receipt to help with budgeting and knowing where their money went. Or worse, they'd have to balance a checkbook.
[02:25:52] Credit cards can offer attractive rewards for their users. Some offer points, airline miles or cash back. Some better cards offer Bitcoin back. The Gemini credit card gives its users 3% back on dining, 2% back on groceries, and 1% back on everything else in Bitcoin. Stack sats while you spend. It may not be the optimal way of dollar cost averaging into Bitcoin, but those constant payments add up.
[02:26:21] Bitcoin can do more with credit cards than serve as rewards for users. Bitcoin can serve as collateral for more than just 3 to 18 month loans.
[02:26:31] One day. Bitcoin can serve as collateral to open a line of credit for spending as well.
[02:26:37] A line of credit would be different from a loan as the credit offers more flexibility.
[02:26:43] Generally, someone takes out a loan for one singular purchase.
[02:26:47] Credit, on the other hand, can be used to buy multiple things over time contingent on making regular payments against the interest, then eventually paying back the credit. Additionally, if you don't use the line of credit, you don't need to pay anything back. This flexibility is great for bitcoiners who want to fund their lifestyles without selling their coins. Life is weird. You often don't know what you'll need to spend money on.
[02:27:13] The Cash and Credit Card Problem Today, paying in cash can be quite the hassle. It's not uncommon to see signs requiring exact change. Because of an ongoing coin shortage, some vendors outright do not accept cash.
[02:27:30] Still, there are certainly people who prefer the privacy that comes with paying in cash.
[02:27:35] So paying in cash is cheaper and more private, but harder for the vendors. At times, paying with credit cards is more expensive and less private, but easier to track. Spending payments on the Bitcoin Lightning network can be made with more privacy as well. So this solves the problem of costly private traceable payments.
[02:27:57] Still, who would want to give up their Bitcoin?
[02:28:01] One common practice when people pay in Bitcoin is to later replenish their stack.
[02:28:06] If you spend 4,000 satoshis on a coffee, you later buy 4,000 more satoshis. Obviously in everyday payments this can be quite tedious. There's a long way to go to make Everyday Lightning network transacting viable.
[02:28:19] Companies like Firefish exist to build on Bitcoin as the ultimate collateral and potentially more institutional collateral.
[02:28:30] As Wyatt o' Rourke mentioned, companies can fund themselves with more than just loans.
[02:28:36] Companies frequently sell bonds to pay for their operations.
[02:28:40] Bitcoin companies can offer Bitcoin backed bonds to operate without selling their stack. Many of them actively do.
[02:28:48] Eventually, these bitcoin backed bonds will be packaged together as securities and resold. On an institutional level, it sounds very fiat, but it's important to distinguish that these securities have the hardest money in the world backing them, not other worthless securities.
[02:29:05] As companies and countries continue to add Bitcoin to their treasuries, they too will leverage it to maximize their growth. In September 2021, Nayib Bukele, President of El Salvador, announced that Bitcoin would be legal tender in the country.
[02:29:21] They also purchased 400 bitcoins to add to their national treasury with constant recurring buys since then.
[02:29:28] They've since worked to be one of the most bitcoin friendly countries in the world. Bukele has announced ambitious plans such as building a bitcoin city powered by geothermal energy sourced from a nearby volcano. To fund this city, they issued Bono Volcan, which translates to volcano Bond. In early 2024, with their Bitcoin as collateral, they sold bonds to start building a city dedicated to Bitcoin.
[02:29:58] After establishing their Bitcoin standard, El Salvador saw growth in tourism, GDP and lower crime rates. Their credit rating improved too. According to S and P Global, their national credit rating increased from triple C stable C to B stable B in November 2023.
[02:30:19] Bitcoin is not the only reason why the nation has improved on these fronts, but it certainly played a key part.
[02:30:26] Bitcoin can be so much more than the world's best payment system. It can be because it already is the bottom line.
[02:30:36] There are multiple excellent use cases of Bitcoin as collateral. Not everyone owns a Picasso or shares of a company that could serve as collateral. Bitcoin, on the other hand, is accessible to everyone and everyone can benefit from collateralization with it.
[02:30:53] Collateralization used to only be accessible to the wealthiest people until now.
[02:30:59] People often call Bitcoin one of the great tools for wealth transfer. With Bitcoin, collateralization has been transferred to everyone now too.
[02:31:08] Bitcoin can be your own private bank. Withdraw money from it when you need it while still maintaining your purchasing power with it. Appreciating over time.
[02:31:19] With Bitcoin you can build your private wealth while giving you complete freedom.
[02:31:25] Bitcoin can become a vehicle that opens up new opportunities for countless use cases in the world of credit.
[02:31:32] Never sell your bitcoin.
[02:31:35] Live off it.
[02:31:37] Check out Firefish IO and use referral code Firebook during registration for borrowers to get 30% off the origination fee to their first loan.
[02:31:49] What does it all Meme My Christian Chepcher Brains CMO Richard Dawkins, the evolutionary biologist first used the word meme to describe how ideas, behaviors and cultural phenomena spread and evolve, much like genes do through natural selection.
[02:32:10] The most successful memes can convey complex ideas, cultural nuances, and share emotions, all with a few simple images and short phrases.
[02:32:19] Memes are a powerful cultural force as a result of careful selection and rapid peer to peer sharing. Just like Bitcoin.
[02:32:28] Through memes we can communicate big truths and complex ideas in a way that's easy to understand and transcends language and cultural barriers.
[02:32:38] They are an essential part of the Bitcoin community.
[02:32:42] It made so much sense to use the power of memes to break down this book's insights, so the key points stay in your mind. Just like your favorite meme.
[02:32:51] Let's f cking go.
[02:32:53] You should definitely download the PDF and navigate to the last chapter on page 96 in order to see the memes for yourself, but I'll do what I can in audio A man is drawing his sword and and on the side of the blade you can begin to see the word sell ing everything else to buy more Fiat bad. Bitcoin Good if you're listening to this book, then you've probably already grown to doubt fiat money. Whether it's because of inflation eroding your purchasing power, the excessive control by governments and central banks, or the lack of transparency, the flaws of fiat are hard to ignore.
[02:33:34] Whose line is it anyway? Welcome to fiat, where everything is made up and the value doesn't matter.
[02:33:41] Fortunately, there's an alternative. Why keep your savings in a money that gets debased to eternity, then gets taxed increasingly more? The state is not efficient enough to be the God of money. Take back your power and choose decentralized money as your preferred way to save the matrix.
[02:34:01] What are you trying to tell me? That I can trade my bitcoin for millions someday?
[02:34:05] No Neo, I'm trying to tell you that when you're ready, you won't have to Taxation is theft. Inflation is hidden tax.
[02:34:17] We've seen currencies collapse due to hyperinflation. Hard working citizens lose their purchasing power due to shrinkflation, reducing product size while keeping the same price skimpflation reducing the quality of a product or service while keeping the same price, the loss of life savings due to government's excessive money printing and more.
[02:34:37] Enough. Now you deserve to keep all the money you work hard to earn.
[02:34:43] The government Give me my cut.
[02:34:46] When you sell something, the government. When you buy something, the government. When you give somebody money or property, the government. When you pay an employee, the government. When you get paid, the government. When you work extra hard and make overtime, the government.
[02:35:02] When you die, the government. When you own property, the government. When you win the lottery, the government.
[02:35:10] Your earnings should be the proof of your work at the end of the day.
[02:35:15] When you work hard, you should earn accordingly. However, this is not always the case as governments, central banks and financial institutions often implement strategies that erode our true earnings.
[02:35:29] Hmm. It says here that we left England because taxation is theft.
[02:35:35] Debt is a powerful and useful tool.
[02:35:38] Make it work for you.
[02:35:41] Remember, debt is neutral, neither inherently good or bad. It is a tool. It can be used to enhance your life, but if not used effectively, it can make your life more difficult.
[02:35:54] This meme is one of the what consumers think I do, what clients think I do, what regulators think I do, what my manager thinks I do, what I think I do and what I really do. And to save a few minutes of awkward explanation, I'll just point you to page 101 of the PDF.
[02:36:11] Good debt can help you build wealth or generate income over time. It typically leads to financial benefits or an increase in your net worth.
[02:36:20] Bad debt leads to a loss of value and is often due to bad actors at play.
[02:36:27] Be careful about bad debt. Lenders with ill intentions, predatory credit card companies or scam financial institutions and poor financial habits make debt work for you.
[02:36:41] Suspicious Futurama not sure if Debt Owns Me or I Own Debt Learn the Finance Bros Lingo.
[02:36:52] Finance can be a complex language full of buzzwords. Understand it so you can take control of your debt. Re read chapters in this book about LTVs, liquidation, multisig collateral and more.
[02:37:06] Bab please stop trying to orange pill our guests. The banks aren't safe and your money is being rehypothecated in a zero fractional reserve banking system. When you deposit money into your bank account, it is even yours anymore. This is why you need Bitcoin. 12 words in your head and you can free yourself from the fiat enslavement system. The bankers don't care about you and spent your future already.
[02:37:26] Bad collateral Big bad debt can create a global economic crisis. Remember what happened in 2008. The financial crisis of 2008 happened because of bad collateral, mismanaged debt and predatory lenders. Bitcoin was partly started because of the financial crisis of 2008 as the answer to all those problems.
[02:37:51] The cascading domino effect, the giant domino A complete collapse of the global financial system, the tiny domino strippers in Florida unable to pay their mortgages.
[02:38:04] Bitcoin is the ultimate collateral.
[02:38:08] Since Bitcoin is the ultimate money technology and debt is not necessarily bad, wouldn't it be great to use Bitcoin as the ultimate collateral?
[02:38:20] Them 5% allocation to Bitcoin is too risky.
[02:38:26] 100% Bitcoin take a look at what Michael Saylor, often called the King of collateral did A well known advocate of Bitcoin, Saylor's company Microstrategy, has made headlines by taking out hundreds of millions of US dollars in loans backed by their Bitcoin holdings to purchase even more Bitcoin.
[02:38:50] To this day, the value of MicroStrategy continues to skyrocket. He went bold and it's paying off. His strategy demonstrates unwavering confidence in Bitcoin as a long term store of value and shows how it can be leveraged as effective collateral in the traditional financial world.
[02:39:09] Character Profile Joaquin Phoenix as the Joker did you know? In order to play the role of an insane and mentally depressed person in the movie Joker, Joaquin Phoenix sold his Bitcoin Ready to level up on life using Bitcoin as collateral?
[02:39:29] Fortunately, it's easier than ever thanks to Firefish.
[02:39:33] Firefish is the marketplace where you never sell your bitcoin, you live off it.
[02:39:40] Firefish is different.
[02:39:43] Firefish is not a custodial lending platform unlike those trust me bros in the past like Celsius or Blockfi.
[02:39:51] Firefish is not a trust me bro platform.
[02:39:56] It's a peer to peer marketplace connecting investors wanting to make interest on their fiat with borrowers who want fiat and and can offer the best collateral. Bitcoin Firefish is simply a peer to peer marketplace for those two parties facilitating the loan market.
[02:40:16] The goose asks uncomfortable questions huh? Where does the yield come from? Blockfi and Celsius are running away. Huh? Where does the yield come from? Motherfucker.
[02:40:28] Firefish operates as a non custodial marketplace, so even if it suddenly disappears, all the contracts can still be fulfilled allowing users to retrieve their funds and collateral. It is a non custodial marketplace leveraging sound money, Bitcoin and the powerful secure technology of multisig wallets.
[02:40:53] Image of a beaten, ripped apart and exposed mask Spider man my underwear watching me buy more Bitcoin.
[02:41:02] It offers a peer to peer lending solution where earning interest is done the right way with transparency and autonomy making it a reliable marketplace for managing financial agreements.
[02:41:16] So what are you waiting for?
[02:41:19] Close this book and explore Firefish IO Now.
[02:41:25] Bitcoin is the ultimate form of money and collateral.
[02:41:30] Bitcoin is the ultimate collateral and the ultimate money technology.
[02:41:35] If you remember only this, then this book has served its purpose.
[02:41:40] Walter White speaking with his wife in Breaking Bad what are you backed by?
[02:41:46] Walter White as Bitcoin?
[02:41:48] I am not backed by anything.
[02:41:51] I am the one who backs everything.
[02:41:55] Too long didn't read 1. Bitcoin is the ultimate form of money and thus collateral.
[02:42:04] 2.
[02:42:04] Firefish is the you don't have to trust me bro. Bitcoin backed lending platform to help you never sell your bitcoin. Live off it. Three memes are life.
[02:42:18] Sooner or later everybody gets it even the finance Bros. Bitcoin is for everyone after all.
[02:42:26] 2017 BlackRock Drake disapproves Bitcoin is for money laundering, but 2023 BlackRock Drake Bitcoin is a flight to quality.
[02:42:37] So let's collateralize and build.
[02:42:40] Check out Firefish IO and use referral code Firebook during registration for borrowers to get 30% off the origination fee to their first loan.
[02:42:50] Simpsons crashing through the window My kidnappers returning me after listening to me talk about Bitcoin for two hours onwards.
[02:42:59] Check out other Brains titles Bitcoin the Separation of Money and State, Bitcoin Mining Economics and the Bitcoin Mining Handbook.
[02:43:11] For those who appreciate the smell and feel of a high quality, freshly printed book, our store offers all of our titles in physical formats. Get yours today at Store Brains. That's B R A I I N S.com or download for free. We're committed to making the information in our books accessible to all, which is why we offer our entire collection in multiple languages for free through digital download. Download yours today at Brains B R A I I I n s.com/books.
[02:43:44] We hope you enjoyed this reading of Bitcoin the Ultimate Collateral, written by Martin Conner.
[02:43:51] Never sell your bitcoin. Live off it.
[02:43:55] Read to you by Guy Swan of the Bitcoin Audible Podcast, brought to you by Brains and Firefish.
[02:44:02] Thanks for listening.
