JP Morgan to Integrate Bitcoin Collateralized Loans

Wow so it's finally happening!

And of course by finally I mean it's happening a lot sooner than I initially expected. This is something I've been talking about randomly over the last 6 months. We are on the verge of banks adopting Bitcoin as a form of legitimate collateral to print fiat dollars.

The Bitcoin Standard is becoming a thing right before our very eyes.

Used to be banks printed paper money based on gold collateral. This was called the Gold Standard. Then bankers got super greedy and central banks came about and removed the gold standard so they could print paper out of thin air legally (a thing that often led to the public executions of bankers back in the olden days). You see? Crime season has been a thing long before crypto existed.

JP Morgan... really?

Super funny that JP Morgan would be the bank spearheading this type of behavior because the CEO Jamie Dimon is a notorious Bitcoin trash talker second only to people like Peter Schiff. One year he's saying Bitcoin is a worthless asset with no intrinsic value backed by nothing, the next he's integrating Bitcoin into his own bank quietly as he buys some on the side for himself.

Of course Bitcoiners themselves hear news like this and they showcase their own hubris by saying things like, "Everyone bends the knee to Bitcoin sooner or later." I find this kind of funny because it's hardly bending the knee to utilize a tool that's almost certainly guaranteed to make you money over the long term. Extracting maximum value out of an asset isn't exactly becoming a "submissive beta cuck" like a lot of these plebs like to act.

This is even more accurate when we realize what's actually going on here. Banks are going to leverage Bitcoin to print more fiat out of thin air. And then they're going to charge interest on that money. It's just free money for the banks unless both Bitcoin crashes and doesn't recover on top of the loans defaulting. I'm guessing the chance of that happening is extremely low especially in these early stages where banks probably aren't going to dive right in and create a situation of extreme overleveraged derivative slop. It could take multiple 4-year cycles for something like this to get out of control and completely blow up. But you never know: greed is limitless.

Many headlines are overreporting the situation.

Notice how JP Morgan is only offering this service to "institutional clients" to start. A lot of these articles are just leaving that bit out and pretending like every pleb is going to have access to these types of loans. This is an important distinction because it means that retail won't be buying their house or car with a Bitcoin collateralized loan anytime soon. It will happen eventually, but nobody knows how long it will take.

What are the advantages?

This will be the first time we're offered "no liquidation" loans and the chance of systemic collapse will actually be low. ThorChain offered them and look what happened. They went insolvent and it wasn't even a bear market. A bank, on the other hand, has the capital and reputation (bailout) to survive such a situation. Just look at what happened the last time the banks were in trouble. The FED just gave them a free backstop to borrow from. "Too Big To Fail" vibes.

Example

You give the bank 1 BTC to buy a house as a down-payment. Maybe the house is worth four or five times that. Doesn't matter to the bank because now both the house and the Bitcoin are collateral for the loan (overcollateralized). Price of Bitcoin could crash 80% on the short term, doesn't really matter to the bank. You still legally owe the money back to them and they don't need to liquidate the Bitcoin at the bottom of a bear market. Ten years later your Bitcoin collateral could easily be worth more than the house. You could liquidate some to pay off the loan or let it ride and take out and even bigger loan.

Insanely good APR

Banks can afford to give really good interest rates on secured loans with a good ratio. When you buy a $500k house the bank gives you $500k to buy the house, but the house is still worth $500k so the value hasn't been lost; only transmogrified into an asset that continues to secure the loan in the case of default. The fact that housing reliably gains value over time (especially pre 2008) makes bets like this almost a guaranteed win for the bankers.

Bitcoin, on the other hand, is much more volatile than the real estate market but the same concept applies: number go up over time. As long as the bank avoids insolvency during any downturns they'll make a ton of money over the long run. Even if the collateral value of the Bitcoin goes down and stays down the client still legally owes the money back with interest. Choosing who can and can take the loan is important. Clearly banks will start with "high reputation" clients aka institutions.

Because this is such a new feature it means that many entities will be willing to take a worse deal than the average secured loan. This could come in either the form of overcollateralization (Bitcoin worth more than the loan) or a worse APR. Considering current APRs for this service on centralized exchanges are astronomically high compared to traditional secured loans at a bank, there's a lot of wiggle room here for the banks to undercut the free market one chip at a time and gain a huge leg up on the competition.

Bitcoin treasury companies

As stated before retail plebs will not have access to this type of service and it will be rolled out to institutions first. Makes perfect sense considering how many Bitcoin treasury companies have popped up who hold a ton of Bitcoin on the balance sheet. Now these companies can borrow against their own Bitcoin without selling it to grow their companies. In essence Bitcoin treasury companies can now give themselves a loan with their own asset rather than sitting on dwindling USD reserves inside their coffers.

Top signal?

Of course everything is a "top signal" in crypto so many out there are just acting like this is even further "proof" that the bull market is over. That doesn't actually make too much sense because the announcement of such a service hasn't created any overleverage or bubbling within the market. A service like this has to be in operation for at least a year before greedy bankers start doing greedy, risky, and stupid things that could get them into trouble.

Conclusion

It's only a matter of time before these types of deals are being offered to retail end-users rather than just big institutions with lower chance of default. Slowly but surely the banks are dipping their toes into the industry, and they may even be forced to dive in head-first depending on how many countries decide it's a good idea to create CBDCs and try to cut out retail banking from the ecosystem entirely. It's weird to think that one day retail banks might be standing side by side with the degens against the central banks themselves. Could happen!