NYDIG, a subsidiary of Stone Ridge, is set to enhance its Bitcoin-backed loan offerings through float financing, as outlined in the firm’s 2024 investor letter. The letter addresses common criticisms regarding Bitcoin’s utility, asserting that it can generate cash flow and serve as collateral for fiat loans.
Float, a crucial concept in insurance and asset management, refers to the investable capital from premium payments or reserves. Stone Ridge’s Longtail Re has successfully managed billions in asset-backed loans, although none have been Bitcoin-backed until now. The strategy draws inspiration from Warren Buffett’s Berkshire Hathaway, which has effectively utilized its float to leverage investments.
By incorporating float into Bitcoin-backed lending, Stone Ridge aims to create a new liquidity source for Bitcoin holders. The firm envisions a cycle where increased utility for Bitcoin leads to reduced market supply, contributing to its value amid fiat currency debasement.
Marathon Digital advisor Sam Callahan emphasized the significance of this move, suggesting it could unlock substantial capital within the financial system for Bitcoin.
Stone Ridge’s “HODL loans” are positioned to compete with traditional stock margin loans, as the report argues that Bitcoin’s risk profile is comparable to that of typical US stocks.
This similarity could lead to more competitive pricing in the Bitcoin-backed lending market, which currently sees higher interest rates compared to traditional loans. The firm anticipates that market dynamics will eventually align Bitcoin-backed loan rates closer to those of Regulation T margin loans.
