Topic: Casascius Loans (Read 900 times)

I've thought about this topic from time to time over the last few months and have come to an opinion that this service could eventually become a multi million dollar business in the coming years. When bitcoin is $1 million dollars where are people going to sell their coins in order to get liquidity? I do not think most people would be comfortable peeling $1 million dollar coins, especially if they have not done it before. Obviously this is just my opinion and I could be completely wrong. In my last post I stated that the pool of potential customers would be small, but it should get bigger and bigger as the price of BTC climbs.

As long as the coins are insured I do not see any risk from the collectors side, save one exception... that the coins could be stolen and never returned. But at least they would still be compensated. I'm assuming the insurance and payments are fiat based? Not an ideal scenario from a collector standpoint. Maybe this is where bitcoin insurance starts to come into play. MetLife SatsLife premiums anyone?  . The insurance would have to be based in bitcoin terms. See mt.gox situation for an example why. If there is any amount of time taken with any insurance claims, and they are based in fiat, then the collector risks losing BTC based on the volatility during the claim process. Overall an unlikely scenario having coins stolen from bonded courier or vault from a major institution, but then again we tend to bet on the black swan events occurring don't we?

What happens to the premium on these coins when liquidity is injected? People start leveraging their collection to add to their collection maybe? What if they could become like houses, where you put 20% down to own 1btc and lock in a 30 year rate and loan? (these dont even have to be physical casascius coins at this point).

This service would be somewhat bittersweet to see happen however, because casascius coins have been a great "forced HODL" for so many.

watching

Having had to deal with this personally due to my run in with homeland "security" and having to hire three law firms:  one for the criminal charges, one for the civil (asset forfeiture) charges, and one for the tax charges, I can address this concern.

Of all the various governmental agencies that I had to deal with, the IRS is the only agency that has a very clear, concise and published directive of how they view and treat Bitcoin.  The IRS looked at Bitcoin and said "nothing new here" Bitcoin is property and will be taxed as such.  On the other hand the "justice" department says welllll... it is money, property, or a security depending on which view is of greatest benefit to us for the specific case we are prosecuting.

Bitcoin == Property to the IRS so they and you can simply substitute any other property for Bitcoin and see how they will treat and tax any transaction.

So if I have a piece of property (gold, diamonds, land, art, a rental property, Bitcoin, etc.) and I use it for collateral in a loan, let's take using land as collateral to get a loan as an example, this is not a taxable event.

If you sell your Bitcoin at a profit you owe short or long term capital gains.  If you sell your Bitcoin at a loss you have short or long term capital losses.

If you use it as collateral to get a loan you have not sold it.

Obviously IANAL

Jesus, I can't believe I have never done that math before. That's fucking crazy.  I would guess at lease 20% of that is lost forever, I know a few people that misplaced Series 1 error coins, or gave them away etc when they weren't worth enough to look after.

Personally I quite like the whole idea, I think it makes sense, but at the same time I would never do it, just wouldn't feel comfortable with the risk. I don't loan my bitcoin to deFi for yield either though, and obviously a lot of people do, so I must have a lower risk profile.

Buying bitcoin and holding it for 8 years was risky enough for me, be greedy to take on more risk for a few more %.

Totally agree re incentive to keep others peeling. As a collector you love to see it as it makes your own coins more valuable! Regarding low premiums, it will be more work to do this than peeling for sure and I expect many will choose to peel rather than going through steps to physically deliver it to a custodian. Some people may think the premium will rise in the future and would go through the trouble to keep the option of selling when/if premiums rise but hard to gauge how many hence this thread.

You're absolutely right that these loans will be different due to the inability to re-loan the BTC to someone else for a higher rate. That being said, companies usually pay you to lend them BTC and then charge others to borrow, so this simply removes the third party and the net income should be close to the same if not more (BlockFi pays 4% to BTC lenders and charges 5-6% to borrowers for a net of 1-2%). If they charge Casascius coin loan holders 3-4%, and the cost of physically custodying is incrementally more expensive due to already having a system in place to custody gold and other physical assets, it might make sense. A fact that blew my mind is that there are ~$2.3 BILLION worth of BTC currently held on Casascius coins (not to mention BTCC). If 5% of holders use this service at a 4% interest rate, that's $5M revenue per year. If they help to broker sales of coins and take 4-5% of sale price, that adds additional revenue

Good luck helping people avoid their capital gains taxes.  Sorry for "spreading misinformation" on your vaporware thread with genuine concerns.  Your response makes me feel like you've got a well thought out plan on how to address customer audits by the IRS and any concerns are obviously due to not having your level of experience dealing with deferred taxes.

I think another factor that will be appreciated more in the future is the "clean" history of the loaded coins. They are either straight from the block rewards (BTCC) or loaded in 2013 or prior (Casascius).

As a collector I would like to see more and more coins peeled to make my personal collection that much more valuable as opposed to provide a way to preserve coins being peeled. However, I do see the potential added value/utility that posting loaded coins as collateral could provide some collectors and maybe bring more interest to the physical bitcoin collecting space overall. And I do not think it would materially effect the number of coins that continue to be peeled daily anyway, so it could be a valuable service if only for a small number of people.

While it is a novel idea to add liquidity and utility to loaded coins without peeling, I don't think the market will be large enough for a company to decide to devote full time resources towards. Will there be individuals that live close enough to the same city as custodians, and that could also use liquidity on their funded coins? Yes. But time will tell, so thank you for starting the discussion at least.

Also, the bitcoin premium will be a large part of the decision process. After all, that is what people are trying to preserve when going through this process. If the bitcoin premium is small for a specific coin, then it would make more sense to just peel the btc and digitally post that btc with a custody provider or defi solution, rather than going through the physical travel and physical custodial process. If a custody provider, such as Blockfi, gets to a point where they really need btc liquidity it could make sense to offer a premium/bonus to physical collectors that peel and send directly to them for loans or yield.

Something else to note from a business standpoint is that this market will only get smaller over time. Other than Casascius or BTCC, what other makers will be considered for these type of loans? Over time, more and more coins will get peeled and the potential pool of collectors wanting to get loans will decline. Also, the custodial provider does not get to use the bitcoin that is loaded on the coin for their benefit, unlike their business model today where you digitally send btc and they rehypothecate.

Ultimately I fail to see what their incentive is to provide these loans that also have add physical custodial risk. The only way it makes sense for them is if they loan btc and not usd in hopes the borrower defaults.

Please don't spread misinformation. The tax code exists to create incentives. Why are short term and long term capital gains taxed differently? Why can you defer the taxes (indefinitely) from the sale of a house if you invest in another house through a 1031 exemption? Why does the FED have lending facilities where large market participants can get loans on their stocks to buy other stocks? Why do most brokers allow you to take loans (margin) to invest in stocks using your existing stocks as collateral? Why would you get a loan on an asset that has appreciated significantly (and you believe will continue to do so) rather than selling it outright? All of these things cause more demand in a market and stimulate the economy which is why the tax code incentivizes it. A rational person will do the thing that is a better financial decision and all of the above would likely be a better decision due to triggering less or no capital gains. Read the rules, understand them and make an informed decision but please don't spread uncertainty because you aren't aware.

As someone who has brokered deals on this forum, I hope you have a carefully maintained AML policy and list of all individuals (SSN, Address, driver's license etc.) you have interacted with. Creating a coin that pays out mining distributions to owners is a security, and selling an unregistered security will for sure land you in legal trouble, ask Ripple. I would rather have a copy of the tax code and a loan packet from an internationally recognized bank than send the IRS screenshots of DM's from an anonymous escrow.

I'm not sure this could be the tax haven you describe it as.  I think if you cash out a great deal of cash from your BTC, Uncle Sam is going to come looking for you regardless of what story you have behind it for not paying taxes.  Even if what you're describing is totally legal from a tax standpoint, it seems like it would be begging for an audit, which can cost a great deal of time and money as well as putting your lenders in a potentially bad position. 

I could see this idea being useful for those wanting to try and time the exchange rate to make money, but selling the service as a tax avoidance scheme seems like a bad idea.  Ignorantly paying your taxes incorrectly is one thing, but engaging in tax avoidance schemes like this lands people in jail.

Thanks for selling me my first Cas coins back in the day 

I totally agree, really excited by DeFi. Crypto will continue to struggle to interface with the physical world for quite some time without trusted intermediaries/oracles though. If it is to truly be the internet of value, how does one express ownership of physical goods like houses, cars, or coins without a trusted intermediary? Crypto allows for the minimization and compartmentalization of risk, not the removal of it. Digital native things are an easy sell, physical is challenging.


To all the replies like this, if you want to keep you coins in a personal safe for the next century, more power to you I fully support that. As of now though if you don't want to simply hodl, you're forced to mail the coin and use a forum based escrow or fly and meet someone in person and hope nothing bad takes place. My risk tolerance isn't happy about any of these solutions. Unexpected things happen and sometimes people need to sell/get a loan and the market is very very illiquid right now. The only other option is to peel which many people are doing. This endeavor is driven by my own desire for a better solution, so if you have any better ideas I am all ears. I am lucky to have access to many of the leading crypto companies and several large traditional finance companies and can leverage those relationships to create a solution.

The custodian I am talking to custodies several hundred million dollars worth of gold and has a global bonded courier service. They are regulated by the NYDFS and have a top tier national firm engaged to conduct periodic audits. They are interested in facilitating loans as well as coin sales. If I store my coins there and eventually want to sell, do you think some wealthy individual would be more comfortable going to them, or head to bitcointalk? We are at a value where secondary collectors market sales needs to grow up or die a slow death of stagnation imo. (please notice that I do not mean collectors who just choose to hodl, I totally agree that no one is better for that than yourself).

Sounds like a glorified crypto pawn shop!  HARD PASS for me for sure, but to each their own.  

....and a question to whoever is putting this together.... will these be in EVERY major city so people can drive there easily?  Most people won't even get on a plane with a 1 BTC Cas for fear of TSA issues currently.  Are you going to suggest they mail the item/items?  There are SO many hurdles you have not even thought of to even get something like this going.  I could be wrong but I think this is an awful idea.

It does not have to be that way anymore.  The beginnings of the solution can be seen on DeFi lending/borrowing platforms.  Moving our crypto to centralized companies would be a major step backwards in my opinion. 

At the end of the day, that is how society in every country has worked for more than the past 100 years. Billion dollar companies lend their money and trust other billion dollar companies to hold money for them. I don't think we will be escaping that reality anytime soon.

interesting concept, the problem comes in associating and implementing current world fiat currency rules on this digital commodity, I believe there to be a conflict of interest here, But I can see this being usefull service for only a select few, For example, right now, If I offered up a fully loaded 1BTC coin, and lets pin the price at $50k, then I would only be willing to pay 10% more ($55k) return, but then the price fluctuations keep this trade uneven, if the price goes up, I would be more inclined to keep up payments, but if the price went down, what's to stop me from just walking away?

you say loan will be on 50% of this value, This is in line with many "cash till payday" service's and OTC second hand loaner's, but for higher profile people is just not viable, were talking thousands, not tens, it works on lower value items as its akin to the social grouping of their financial structure, but when its escalated to higher profile people, I cant see this working, I would not sell one of my houses for £200, when I can sell on the market for under half a mill, its just insane.

And all of this is not taking into account the validity of BOTH parties involved, I have considered loaning to people, but not only do I not trust anyone who would even consider accepting a small percentage of the true value of an item (not bitcoin) because in my mind, if they are desperate enough to do this then they obviously have issues controlling finances, thus pushes their ability to repay in question. But what's to stop me from acquiring a few mill and just running for the hills, as solid and honourable someone is, money corrupts.

I know alot of this ramble is conjecture and not applicable to the masses, but I really feel there is a huge gap for bitcoin percentage based loans, and I will follow this project to see what you do.

best all.

In the proposed scenario you also have to trust Blockfi with the 800k USDC

and you forget one part - that you have to trust someone to hold something currently worth 2 million that will most likely continue to increase in value while hoping they dont skip out on you. I would not trust a bank with even half that much money - why would I trust these guys? Not your keys - not your crypto.

Exactly! Glad it helped to clarify. It can be a bit hard to convey some topics clearly on the forum. Here's another example that I've been considering (I'll use larger numbers because it makes the math easier for me! )

Say you have two 25BTC coins worth $2M (lucky you!) and you get a loan for $1M.

You then buy a $1M house in cash. You then refinance and pull 80% of the home value out. You now have a mortgage for $800k which is around ~$3600 a month if you get a 30 year 3.5% interest rate loan.

You then take that $800k, convert it to USDC and lend it with BlockFi (there are tons of providers but using this as they have a great calculator on the site) where they are currently paying $68,800 a year for lending $800k in USDC. This means they pay you $5700 a month in interest, which can go toward paying your mortgage and Casascius coin loan. Let's say the Cas coin loan is $4k a month + $3600 mortgage - $5700 a month you get in interest from Blockfi = You get a million dollar house and get to keep you Cas coin for $1900 a month. 

Your example makes perfect sense to me.

Assume someone had a 25 BTC coin, currently worth over 1 million, and they expect it to go higher.

They can get a 500K+ loan, buy a house, plane or whatever and still participate in the expected run up in BTC value.

I now understand the use case.

Could be very useful for some coin holders.

These lenders run their business on fiat. They denominate the loan in fiat for accounting purposes (even if they send you BTC and ETH they note that as the USD spot price at the time they send to you) and do not want to speculate on the price of BTC. Hence why they give you 50% of the BTC face value at the time of the loan. This allows the price to drop up to 50% before they need to liquidate the collateral or ask you to post additional collateral. At the end of the day they want the loaned USD amount back plus interest. If bitcoin goes up or down they don't want exposure either way if that makes sense.

BlockFi has a great calculator to give you a ballpark estimate: https://blockfi.com/

I get that it's not everyone's cup of tea, but personally being able to get liquidity on a few coins without any exposure to capital gains, buy a house with cash (and potentially refinance and pull out up to 80% of the homes value to invest back into crypto if you want to really leverage), but still be able to capture any value from an increase in BTC value or numismatic value is quite interesting in my opinion.

Assumptions made in my previous post:

The coin is legit
The lender holds the coin
The lender has no need or desire to cash out during the term of the loan

The risk could be the coin's private key is unreadable or maybe an error in the process that led to the address being incorrect and empty.  Also, who holds the coins?  There is potential there for that person to run away, be robbed, die, etc...  There is also significant market risk if we see another giant bubble, you would be unable to cash out because you cannot peel the borrower's coin, nor do you have the loaned funds. 

Personally, I would need a pretty huge APR and a lot of assurances to even consider something like this as a lender.  As a borrower I think you'd have to be trying to game the exchange rate and keep your coin.  A pretty big gamble, but could payoff well for you if the timing is right.  I prefer sporting events, but whatever makes you happy.

yep, I am still trying to get $2k worth of QASH from the Liquid exchange since U.S. account holders were banned

Assuming an older coin, I do not know why as a lender you would not loan the entire face value.

If you get an older coin, loaded by Mike himself, and lend 1 BTC for it, the worst case scenario is:

They never make any payments and default on the loan.  In this case you get:

1 BTC
1 BCH
1 BCL
1 BTG
1 BCD
etc, etc.

Of course the only one worth anything, besides the BTC is the BCH but that is currently over $1,000

+ the collectible value, whatever that might be.

Assuming you open the coin and collect the BTC and all the forks, or sell it for the combined value, you make a profit on a completely defaulted loan.

Better case:  the borrower makes some of the payments then defaults.  The lender gets the coin plus all the payments made.

There is basically no risk to the lender if they lend full BTC value on a pre-fork coin.

I totally agree, trusting the service providers is one of the main challenges here. I can't go into detail publicly but the custodian and both the lenders I am talking to are valued at several billion dollars each and do hundreds of millions in transactions per year (one being a publicly traded company with a federal banking charter). Still very much a non zero risk but hopefully that gives some context on their scale. As a service provider they will need to make us feel very comfortable with the arrangement for me to be interested.

This is definitely not an option for everyone, I have been surprised by the level of interest so thanks to all those that reached out! Imagining a world where physical crypto can be loaned against rather than peeled or sold at/below peel value is exciting to me. Also having a trusted custodian help in brokering sales and marketing to a larger audience would be a net benefit for the community imo. I appreciate the input, I will keep you all posted!
 

I agree with Mopar.

No way I would trust this business. I say buy the best things you can with your current real wealth, versus using debt.

It looks like a great idea.

As a borrower I would like to borrow up to 0.8btc / Cas
And probably not pay more than 8% per year.


As a lender, I would feel happy with lending up to  0.8BtC per Cas, and liquidation at 0.9btc (if they don't pay interests !), I would also be happy with 8% interest per year in BTC, paid monthly, compounding if unpaid at approved date.

Maybe also a mechanism where the lender gets paid a one-off $100 for the shipment / going to safe deposit box  / setting up the loan structure.
That would prevent people to borrow a cas and return it 3 days later.  

Even at 25-30% it seems to be a bit of a risk for the custodian if the loan is in fiat. Given that we have seen BTC lose 80%+ of its value from peak in past. But that's where the numismatic value of the collectibles comes into play too. If the loan is in BTC value it would probably have to be close to 80-90 percent or more.



^

I would also worry about other potential threats such as a potential fire or theft. Or some employee in the lending firm going rogue and redeeming your private keys (this might not be very likely to happen but you still need to put some level of trust on whoever you're giving possession of your collectibles to). When I keep collectibles under my own watch, I understand all the risks and can take measures to protect myself against those risks. I wouldn't trust a firm or custodian whose sole purpose is to make money to make decisions that are in my best interest.

I personally would never take a loan against my collectibles, but different people have different risk taking tendencies so there might still be market for this. People trust the likes of Celcius and BlockFi to lend their BTC and borrow against their BTC, I imagine there would be a market for what OP is proposing too.

for me, I would never do this - this would mean giving someone possession of my collectibles. I see this as the same sort of fallacy as trusting an exchange to be your wallet. It's all good till they have 10 million in physicals that they loaned out 5 million for and then they up and disappear. And that could easily happen in the crypto space. And it has happened many times. Sorry, once you give up your keys, it ceases to be your crypto. You are essentially selling your item and hoping to eventually buy it back once you pay off the loan.

The lender is totally protected if the entire transaction is in BTC.  Although I am not sure that is what you are talking about.

i doubt any one is willing to lend more than 25-30%of BTC value, if you borrow 25kfor 1 btc and the BTC plunges like it did in the past,thenthe lender is screwed!

The numismatic value and what someone is willing to pay in premium is largely based on the denomination and rarity of the Casascius coin.

Are we talking about brass 1 btc, silver gilt 1 btc etc. ?

For BTC a good ballpark estimate is 50% of the value. So $100k in BTC they would give you a ~$50k loan. I am pushing them to consider numismatic value but that is a pretty accurate lower bar. I am working to get specific interest rates but they wanted to see level of demand first.

If you have a 1 btc coin, I do not believe they are going to loan you the current dollar amount, or am I wrong? I checked out a thing on Celcius and to borrow like 20k, i needed to deposit like 1.65 btc with them as collateral. I suppose this is better than selling and potentially having to buy back btc at a higher price. And the interest rates seemed quite reasonable at like 0.7-1%.

Exactly like any other collateralized loan, the lender holds your collateral and then sends you USD/BTC/USDC and gives you a repayment schedule (principal + interest). You make payments every month and when the loan is paid off you get your collateral back. If you stop making payments for longer than a set period of time, the lender can sell your collateral to recoup the cost of the loan. It's kind of like a car loan, if you stop making payments on your car, the bank will have someone come pick up your car (the collateral), but if you pay off the loan, you own the car outright. Let me know if that wasn't clear enough

Walk me through this. If someone gets a loan, they are going to have to pay interest on that. How do they pay that back if they never want to access their coins?

Hey everyone,

I have been talking with a well known custodian and a few potential lenders regarding loans for Casascius coins. I am personally interested since a loan does not trigger a taxable event and it is also a way to access liquidity without having to peel or sell coins (especially with premiums as low as they are).

The lenders are interested but one of their main questions is how large the potential market is for this before they invest time and money into it. If you are potentially interested in getting a Casascius coin loan, DM me or comment here and if comfortable give a ballpark estimate of the BTC value you would be interested in getting a loan on. Obviously this is not binding in any way and I will leave it to them to legitimize the process and ensure the safety of all our coins, but this market research would be quite helpful. Thanks  

edit: They could potentially do BTCC, Lealana or any pre-loaded BTC coins as well, I just need to discuss authentication of these with them.