Would you bet the house on Bitcoin
Good morning/evening.
I can hear it now, what have you done? Are you crazy? maybe but maybe not.
This could be an interesting avenue to explore, not something I have done......Yet!
What I have done though is borrow USDT on Aave and use that to buy more BTC whilst collateralizing that loan with BTC and always keeping a healthy score or “collateral factor” the amount you can borrow is determined by two factors. First is the amount I have deposited in the protocol’s funding pool. Second is the quality of the coins put down as collateral. The higher the quality of collateral the higher the amount can be borrowed but I am nowhere near the maximum I am able to borrow, I keep an eye on price fluctuations and the APY on a daily basis. I check liquidity levels are good.
(BTC would have to drop to sub 40K levels for me to reach my liquidation level) So yes there are risks but I have done my best to minimise those risks. I am also prepared to allocate more funds or BTC if necessary. I have been conservative and that would amount to leverage of 1.5%.
Aave rates.
I also use a similar strategy on Kamino with SOL, I have borrowed USDT to buy SOL, again with SOL as collateral and again at a rate I am comfortable with. I have been conservative with my pairs and could earn more with different tokens but I like to have at least one stable coin as part of the pair as in my opinion that is safer than having 2 volatile tokens.
I have also for a while, used this same strategy on MarginFi but recently paid back the USDT loan when SOL reached $200 (SOL was under $100 when I took the borrowed USDT and brought more SOL) it means I am effectively paying back the borrowed USDT with profit from the increase in the price of SOL, with some SOL left over as profit as well as interest earned. There were a couple of reasons I paid back on MarginFi, firstly I don't particularly like the UI and secondly the borrow rate went as high as 40%.
Now that brings me back to the title of this post, someone asked me if I would be prepared to take out a loan or even remortgage the house in the UK to buy Bitcoin, my reply was 'hell no'. It was not until later that husband AKA David said to me, why did you say no, that's only the same as what you have been doing on DeFi protocols! he has a point there and that got me thinking. As much as I don't like banks, I could actually borrow money at a lower rate than I am paying on the DeFi protocols. (I know that technically, using a bank is the opposite of what crypto is about!)
Now the way I see the borrow/lend on DeFi is as a shortish term investment strategy and I am aware that there can be huge risks, also timing can be a huge factor, knowing the market and having done research is another consideration but I am from the era where if you can't afford to pay for it, don't have it. The mortgage being the only loan that you have and you work hard to pay it off. We have been mortgage free for 15 years and believed that to be a great achievement so that was where my original NO way came from, but I guess it could be perceived as yet another investment strategy to achieve my higher BTC goals by doing some amount of remortgaging. Currently I go back to the UK and do a work stint to buy most of the BTC, therefore not using savings or monthly income (apart a set amount for when we DCA in). This could be a way to acquire more BTC at a quicker rate. I am not saying I will do this (I probably won't to be fair) but it is something I had not even considered before.
What are your thoughts? Is this something you have done or would consider? Please feel free to comment and as always thank you for reading.
Ai image from https://gencraft.com/
