NYDIG, Stone Ridge’s subsidiary that offers Bitcoin-backed lending, is preparing to expand its offering through float financing, according to the company’s 2024 figures. letter from an investor.
The letter refutes common objections to the usefulness of Bitcoin (BTC), suggesting that it can generate cash flow through sales and serve as collateral for fiat loans.
Float is a key concept in insurance and asset management. It represents investable capital derived from premium payments or reserves. Stone Ridge’s Longtail Re has experience deploying billions of dollars in asset-backed lending, even though it’s not backed by Bitcoin.
Warren Buffett’s Berkshire Hathaway is known for using its float as leverage. The company increased its float from $114 billion in 2017 to $164 billion as of December 31, 2022.
Consequently, integrating float into Bitcoin-backed lending could transform the market and provide BTC holders with a source of liquidity.
Stone Ridge foresees a positive feedback loop of increased utility for Bitcoin holdings by keeping it off the market, accelerating the depreciation of the fiat currency, and further increasing Bitcoin’s value.
Marathon Digital Advisor Sam Callahan called This move is a big deal because it would unlock “one of the largest investable capital pools in the entire financial system” into the Bitcoin ecosystem.
He also shares the same view from the report that more efficient lending via Bitcoin backing would reduce costs and prevent BTC from being sold for liquidity. This would increase the price by increasing scarcity and demand, attracting more institutions and accelerating adoption.
Rival equity margin loans
Stone Ridge calls Bitcoin-backed loans “HODL loans,” which rival traditional equity margin loans in risk profile and cost-efficiency.
Although the market has historically viewed Bitcoin as volatile, the report states that its risk metrics closely mirror those of a typical U.S. stock. This parity opens the door for more competitive pricing in Bitcoin-backed credit markets.
Currently, Bitcoin-backed loans come at a premium, with interest rates significantly higher than traditional equity margin loans. However, Stone Ridge expects that competitive forces will narrow this gap, bringing Bitcoin-backed loan prices closer to those of Regulation T margin loans in the near future.
