Yesterday, I posted a thought experiment about borrowing using your Bitcoin as collateral. I used assumptions of Bitcoin going up on average 12% a year (historically it’s been growing at 130% a year)
A Redditor asked an interesting question: What if Bitcoin go up much faster than a meager 12%yoy, reaching the “best case scenario” market cap of 100 trillion USD in 20 years or at a price of 5 Millions per coin, how would the calculation look like?
Assumptions (Best case scenario imho, I know this is HOPIUM but just for fun and for the sake of the thought experiment)
– Average 25% growth year on year with short term flash crashes of 60%
– Lender give out Bitcoin backed loans at 5% interest rate, flat rate for 21 years, LTV = 40%
– You have 1 BTC to use as collateral and and enough assets/cash on the side to never get liquidated even in flash crash periods
– Lender has insurance to guarantee 100% of your BTC value in the case of a hack or a lost
Using the above assumptions,
Scenario 1: You can sell the BTC today to get 60k OR
Scenario 2: You can use BTC as collateral to take out a loan of 60k EVERY YEAR starting 2025, for 15 years. At the end of 15 years, you want to payback both loan and interest of roughly 1.3M, you only need to sell est. 0.26 of your Bitcoin
You would have made a 3.7 Millions worse decision in scenario 1.