Bitcoin is without a doubt one of the most fascinating inventions of the 21st century. We are living in the transition period from physical reality to digital reality. The emergence of digital technologies has and will continue to change our lives. Some think for the worse, others think for the better.
BTC has changed my life in a lot of ways. Since I was young, I was always obsessed with finance. Going back to when I was just a little kid, people used to ask what I wanted to be when I was older and I would say "I want to own a hedge fund".
Collateralized Lending Vaults
I've written several articles talking about Collateralized Lending Vaults and also a few other strategies I leverage to trade around my BTC core position.
This core position is rather large relative to all of my other investments. I have a firm belief in Bitcoin in the coming decades and I put my money where my mouth is many years ago when I first became a sat stacker.
Buy Low, Borrow, Sell High, Repay
The biggest strategy I use to trade around my BTC core portfolio position is to stack sats when Bitcoin is low, borrow stablecoins against that BTC to pay for any expenses I have and then wait.
What am I waiting for?
The bull market. It feels like we're just in the early stages of this bull market right now. With Bitcoin hovering at $27k-$29k.
I accumulated a lot of BTC under $20k. I started buying when we dipped below $30k but got really heavy around $16k-$18k.
Now that we're starting to enter a potential bull market, I am starting to look at the numbers of repaying my BTC vault. It's not time to start paying off the debt just yet. I think BTC has a much longer run ahead of it in the coming years, but it's good to look.
I could've plugged the values in a spreadsheet, but I've been enjoying playing around with GPT-4 for a few things. One awesome thing is scenarios and calculations.
I gave GPT-4 some numbers from one of my WBTC vaults and asked it to run a few scenarios from me.
You can see Scenario 7 as the current status of the vault. BTC is $29k, the Vault Value is currently $171,165. That vault currently has a DAI debt of $86,553.
If Bitcoin doubled to $58k, then the vault would be worth $342k and I could then repay the debt by selling 25.3% of the vault's WBTC holdings.
If BTC went to $100k, then I could repay the whole DAI loan by selling just 14.8% of the vault's BTC.
Why Does Any of this Matter
Hindsight is 20/20 but let's use some foresight. If you believe in Bitcoin long-term, then the BTC price reaching $58k or $100k feels like an inevitability.
I could pay my bills using income today. Or I could use my income to buy Bitcoin, put it in a WBTC vault, borrow DAI collateral and pay my bills using the DAI collateral.
If BTC one day goes to the prices in these scenarios, then I sell a % of the BTC in that vault to pay back the debt I took to pay for bills.
In a bear market to bull market scenario, this will make you look like a genius.
You're effectively:
- Stacking sats
- Collateralizing sats for a loan
- Using loan to pay for immediate expenses
- Waiting for bull market to pay back the loan using less BTC than you bought (since BTC is more valuable than the debt)
In this vault, I bought most of the BTC under $18k. This means that I am sitting on a pretty handsome profit. The key is waiting as long as possible for the bull market to pay off the DAI debt.
Doing so will mean that I need to sell a smaller and smaller % of the vault. Ideally, I would see BTC hit $100k and then sell 14.8% of the vault to pay off the entire $86k debt balance.
Now I've got $500,000 in BTC that I otherwise wouldn't have - since my choice is to either pay bills directly or buy BTC -> take on debt -> then pay my bills.
Downsides
There are some downsides and I think my next post on collateralized loans will dive into those:
- counter-party risk (since we're using WBTC)
- liquidation risk (if you can't cover with more collateral in the event of BTC dropping rapidly in price)
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