Hodlnaut Newsletter — February 2020
Bitcoin — The USD Starved Market
Scarcity of Fiat Supply in the market
“I am all-in on Bitcoin”
“I only have enough fiat to survive on a day to day basis”
“I sold my house to buy Bitcoin”
Bitcoin was dubbed as the best performing asset of the decade by a CNN article. If you invested in $1 into Bitcoin at the start of 2010, your investment would be worth well over $90,000 a the end of 2019, boosting a 9,000,000% return.
Naturally, Bitcoin investors (Bitcoin-ers), who joined the space over the years and have witnessed the growth, are inherently bullish on its long term performance against fiat currencies (predominately against the Dollar). In some cases, these Bitcoin-ers are will to borrow (leverage) to amplify their returns.
High-Interest Rates on USD
Bitfinex, one of the leading exchanges in the space, allows users to lend out their USD to traders who wish to trade with leverage within the platform.
The lending interest rate differs from day to day and requires some of the lender’s attention to monitoring on a daily basis as traders on the platform have an option of early termination of the loan.
At the time of the writing, USD on Bitfinex was loaned out at 0.1% daily which translates to an annualized rate of 36.5% (APR).
(According to Investopedia, the annual return of the S&P 500 is roughly 10%)
Implied Borrow Rate in the Futures Market
Futures contract — a contract for assets (especially commodities or shares) bought at agreed prices but delivered and paid for later.
These derivatives are traded on platforms such as Bitmex and Deribit. At the time of writing (13th Feb 2020), Bitcoin is trading at the price of $10,329 (price A) while the contract expiring in June 2020 is trading at $10,945 (Price B).
Despite the current discrepancy in price, on the day of expiry (26 June 2020), these 2 prices will converge (Price A – Price B = $0).
If you have USD right now, you can do the following:
- Buy 1 Bitcoin on spot exchange at $10,329
- Short 1 Bitcoin worth of Jun2020 futures contract at $10,945
Profit per Bitcoin at 26th June 2020 = $10,945–$10,329 = $616 which is roughly 6% for 4 months. Simple extrapolation gives you roughly 18% annualized.
The above-mentioned setups do not factor in any transaction costs nor cost of your time and labor to earn the rates when done on a small scale.
You would like to earn interest in a hassle-free manner, do check out the Hodlnaut Platform where you can earn an effective interest rate of 8.3% per annum on your USD stablecoins such as Tether and USDC with no minimum deposits and lock-in period (withdrawals are done daily at 5 PM Singapore time)