RE: LeoThread 2024-12-31 08:23

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Bitcoin Revolution: NYDIG About To Unlock The Largest Capital Pool In Finance

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In a move that could reshape the Bitcoin lending market, Stone Ridge subsidiary NYDIG is gearing up to channel one of the biggest capital reservoirs in traditional finance—insurance float—into BTC-backed loans.

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The news, detailed in the 2024 Investor Letter from Stone Ridge CEO Ross Stevens, immediately attracted attention across the industry after its publication on December 30.

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A Potential Game-Changer For Bitcoin

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Marathon Digital advisor Sam Callahan, commenting on X, framed the impact succinctly:

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“NYDIG is about to unlock one of the largest investable pools of capital in the entire financial system—insurance float—and channel it into Bitcoin-backed loans. This is a big deal.”

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According to Callahan, improved lending efficiency could lead to “lower loan costs,” reduced selling pressure on Bitcoin, and ultimately “increased scarcity”

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and “higher demand and price,” fueling more institutional interest and broader adoption.

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Ross Stevens’ 2024 Investor Letter outlines how NYDIG, which has already facilitated billions of dollars in BTC-collateralized loans, intends to expand by leveraging “float.

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In insurance and asset management, float refers to investable capital held in reserve, often used to generate returns while maintaining coverage obligations.

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According to the letter: “Now that we know Bitcoin can generate cash flow upon a sale, how about using Bitcoin to generate cash flow upon a non-sale?

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Our Bitcoin subsidiary NYDIG is preparing to enable all HODLers, including Stone Ridge, to unsheathe their weapon – borrowed fiat at a low rate – in an amount,

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and at a time, that is right for them. […] Imagine floatpowered HODLing. […] Stay tuned.”

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Stone Ridge’s vision positions Bitcoin-collateralized lending as potentially on par with traditional stock margin loans—both in risk profile and, eventually, in pricing.

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According to the letter, BTC’s realized volatility over the past five years falls within the 40th to 80th percentile of the

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largest 3,000 US stocks, suggesting it is “about as risky as a typical US stock.”

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“That means Bitcoin-backed loans are realistically less, and certainly no more, risky than a plain vanilla, Reg T, US stock margin loan,”

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the letter states, pointing out that current bitcoin-backed loan rates—at “S + ~450 to ~950”—are out of line with the lower margin loan rates typical for stock financing.

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Stone Ridge projects a compression of this premium over time, pushing BTC-backed loans closer to the “Reg T margin loan neighborhood.”

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Insurance float, famously leveraged by Warren Buffett’s Berkshire Hathaway (which increased its float from $114 billion in 2017 to $164 billion as of December 31, 2022), represents a massive well of investable capital.

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While Berkshire uses its float to finance acquisitions and investments, Stone Ridge aims to unlock similar avenues for BTC collateralization.

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Bringing this vast capital supply into Bitcoin could generate a powerful network effect.

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Stone Ridge’s letter envisions a cycle where greater liquidity and lower costs prevent premature selling of BTC (“HODLing”), thereby reducing supply on the open market.

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This reduced supply, in turn, could bolster BTC’s price, driving more institutional interest and heightened adoption.

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Callahan’s emphasis on the ramifications for BTC holders and the broader ecosystem echoes Stone Ridge’s bullish outlook:

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: “NYDIG is about to unlock one of the largest investable pools of capital in the entire financial system… This is a big deal.”

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If successful, the initiative would allow BTC investors to leverage their holdings without resorting to outright sales, preserving potential upside while accessing fiat liquidity.

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A more efficient lending market, Stone Ridge argues, would sustain Bitcoin’s scarcity narrative, further strengthening institutional confidence and opening the possibility of broader mainstream participation.

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At press time, BTC traded at $92,881.

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Featured image created with DALL.E, chart from TradingView.com