Topic: Does this Rule Apply to Institutional Investors? (Read 219 times)

Actually, that rule is only recommended to crypto beginners who don't know what the market cycle is. Usually they buy in the Distribution phase of the market so they lose money and they cannot withdraw their investment. That time is when the investment sellers comes in, so it is not recommended to invest in that phase.

The banks or institutions, they are professional traders and have a lot of experience in the market. They know that they will earn twice as much in the market if they invest in the accumulating phase, and they will surely pay off their loan immediately. That's why for me, know where the accumulating phase of the market is and invest, you will definitely benefit a lot in the distribution phase.

You could consider it a gamble to borrow such amount for any kind of investment in a world of uncertainty. Maybe he miscalculated & thought that buying up bitcoins will always cause the price to rise.
Anyway, I'm now having some pity for him... and may consider allowing him to recover, but that will depend on whether he really humbles himself this time & let his supporters/fans know that he isn't the reasons Bitcoin is bullish. Those fans can be quite annoying sometimes.
Bitcoin Master was alittle annoyed & considered preventing Bitcoin from reaching certain high this year just to humble those who were too sure about a massive bullish run this year, but because of this, it maybe reconsidered. He wants every true Bitcoin supporter to be happy and never regret supporting Bitcoin.
Advice him to follow the Bitcoin Master who depends on the CREATOR of the Universe and It will be well for him. Bitcoin will cross 30,000 soon... When it crosses 31,000 he should be careful but never panic.

Yes this is point here, MSTR's loans were based on a high amount of collateral (a chunk of their Bitcoin stash). Meaning despite it being a risk, it was around $30K if not mistaken, and in the end they managed to lower their liquidation risk to $3K before paying it back due to very high collateral. In the end it was a bit of a dumb loan as there was no rush to buy Bitcoin back then, but collateral was on their side.

The difference with individual loans (non-corporate) is that time is your enemy. Bitcoin could still increase by say 2x, but if it takes a year or longer, the interest could eat you up in the meantime. The only "good" time to take a loan is if you're expecting an imminent bull market, rather than trying to buy the lows. You could buy the lows and price go sideways for a year, which will simply cost you a lot of interest.

Unlike some of those that have been thinking to take loans, they've got no other back ups and if they will default on a loan, the only option they've got is to sell their current assets.

For individuals that don't have that much, it's best to avoid taking loans when you're interested to invest in bitcoin.

Be content as of the moment and look for ways that you can increase your source of income.

this should be the case, but people often assume that the profits will be taken too quickly, without thinking about the losses and risks if the calculations are wrong.
even though you can buy bitcoin without having to borrow from other people as long as you are patient you can also have 1 btc if you intend to invest casually

That's exactly the case and besides that they are also confident that money will continuously roll inside their pockets without them worrying much on their position and their current standing. There are also things they need to consider such as it is an all or nothing gamble and their countermeasures to do if thing don't go according to their plans. If you compare that to any average corporations or person, they didn't have that kind of confidence and guts to take those kinds of risks. It's not that I am underestimating other people, but that's just reality and it is both fair and unfair at the same time. Some people are not cut for that role in life, and that applies everywhere either a person or a corporation.

You're need to look on the bigger picture, not only few people or institution which are successful by taking out loan to buy Bitcoin.

This situation is similar like you don't want to got to college because you know there are many people become successful without went to or finished their college e.g. Albert Einstein, Mark Zuckerberg, Bill Gates, Steve Jobs etc.

The real question are you really smart like them, know what you will doing and you have a big luck? if you not fulfill these 3 requirements, it's better if you shut up and finish your college first.

Yes, not taking out money to invest in Bitcoin (or anything) is always a good piece of advice to follow.

Microstrategy is a company, which is a very different situation. Companies take out loans to grow their business all the time. A company taking out a loan and an individual taking out a loan are two very different things. For example a company can sell some stock to get more money, you can't just sell stock in yourself to raise money. But a company can only do this if they know their cash flow is gonna be able to handle the loan if problems occur in the market.

Microstrategy borrowed some money on loans, but a lot of the money they used was cash they already had, or money from stock sales which means its cash they raised and not loans, or loans at very low interest rates which they get because they are a big company.

When institutional investors do this, it feels just right because they have already proven time and again that their business decisions are sound, because how can they make money anyway if their strategies don't work? A lot of them have taken larger loans and debts to make more money and it's always working out (well, almost). The governments are even ready to bail them when worse comes to worst. I think, in a way they are exempted to this general rule simply because they make money, and lots of money at that with their loans and debts.

that is true, they have the courage to take a multi-million dollar loan because they have other assets to fall back into. however, if you are just a regular individual with regular income, hard to stake your hard-earned money on this market.
the rule also applies to institutional investors. but they have more leeway as they have more assets under their name. and maybe profitable assets so they don't worry about waiting that long like with btc market.

Maybe.

Since they're corporation, they've got other assets that can easily pay out the debt that they've taken. They won't take a debt if they can't pay that win or lose with the purpose of the loan.

While an individual, we may still take a loan and invest it into bitcoin if we want to. But we've seen a lot of people failed with this strategy and if it you think that you'll be able to pay the loan covering it with other source of your income or by your other assets, then take the risk if you want to.

As for me, I wouldn't still do it.

This is one of key points why it is not advice for an individual to take loan to invest in a volatile asset like the bitcoin. The mode of repayment is mostly the issue, most of these individual investors look at the profit that could be gain to pay out their loan which actually creates panic in holding. Someone that is not calm can’t hodl for long and might sell at a loss price during a bearish period if the loan repay date is due.

But if an individual also has an outside income of repaying the Loan without it affecting is financing then it is slightly advisable to take loans. This could happen when an investor sees the market down and wants to capitalize on it but the money is expecting to invest in it might come late then he could just take a loan and repay with the initial planned fund.

Microstrategy took a loan to buy Bitcoin, and the loan they took is not to be paid back using the return on investment.
Investment advice is against taking a loan to invest in coins and hoping to pay it back using the investments.
Microstrategy, which I believe is a company made up of millionaires who are pros in their respective fields, can easily be paid back by selling the company's shares.

The last time Michael Saylor tweeted about their loan being fully paid off, there was nothing like they sold some part of the purchased Bitcoin in order to cover up those loans.

They probably have other plans mapped out for those loans to be paid with, and using those purchased Bitcoins was never one of them. They are real investors who know the risks involved in making such a big mistake as hoping to pay back loans using investment returns.


because they have a better chance of repayment than an individual investor. Like I said, they might have a mapped-out plan to raise the repayment funds from different sources. An individual investor might solely depend on the investment profit to pay back that loan, which will put him or her at greater risk of being a loan defaulter.

MicroStrategy can go bankrupt tomorrow and Saylor will still be a rich man. Taking a loan to invest in something is very similar to investing with high leverage. And trading with high leverage is a bad idea.

I don't see why would things be different for institutional investors. Just like individuals, they need to manage risks. Getting a loan to buy a highly volatile asset is like a multiplier on the downside of the asset.

Investment rules are subjective and vary from person to person, including institutional investors who may have multiple sources of income. Even if they take out a loan to buy Bitcoin, they are capable of regularly repaying the loan to the bank regardless of whether Bitcoin's value increases or decreases. Generally, those with larger amounts of money are able to take greater risks, while those with smaller amounts can only take smaller risks. These are simple but important principles to keep in mind.

While I will partially agree with the institution taking a loan for bitcoin investment is this,  they are running a business with a level of profit they aware of, For this loan they take, they would have looked into it if it will be financially possible to pay it back within the stipulated time because of the risk associated with it but for an individual that you are based on Salary and the loan giving to you which I know that it can pass a year, how do you plan to pay back or you will sell back with the coin you bought.

Nothing is certain in cryptocurrency and being an institutional investor doesn't gauranty any profit or safety in the industry.
But on the long run I always imagined owning 1 Bitcoin because I've always believed that if I own atleast 1bitcoin, I will be able to sleep comfortably with the hopes that I might never get liquidated in as much as the price of Bitcoin never falls to zero, maybe this was exactly what Michael saylor thought and pictured the future and I guess this should be the only hope of borrowing to invest in Bitcoin because rules must be broken.

You can use a soft loan to buy bitcoin. Soft loan in the sense that, there is no collateral and no interest rate but if there is an interest rate, it would be very minimal to pay back. Apart from that, and if the lender will collect collateral and with interest, there is no need to borrow and purchase bitcoin because the risk there is high.
You can see the market these few days. Bitcoin was 30k$ and suddenly the price just come down too 27$k. And if you purchase it at the time of 30k and now that it is 27k. What will you do about? What will be running in your mind if you purchase it with borrowed money?
Institutional investors can do that but with caution. We have see companies have fold up base on the volatility of bitcoin.

I think the phrase and the advice was inflated to such a degree that it is often antagonized if you were to take out a loan to buy bitcoin, I would admit I myself did this a couple times in the past for people who wants to take loans to buy cryptocurrencies.

I think the advice should be, do not go beyond your means whenever you invest in bitcoin. Taking out a loan with the full confidence and guarantee that you would be able to pay it back even if the investment goes under is something that you should take into account before taking out debts. Microstrategy surely knows about this, they may have even put up their bitcoin investments as a form of collateral just in case they couldn't pay the bank. So, it's fine. Institutional investors as a matter of fact do this all the time, that's why they remain rich. However, for the common joe this wouldn't work most of the time. The money we earn is directly related to our capacity to work so the moment we got laid off or fired, we're fucked.

Well, just as the first colleague stated that the rule is mostly for retail investors, I would want to add that institutional investment is not just based on one person's agreement before taking out a loan to invest; it's usually based on the agreement of all shareholders of the company, which even has a well-mapped-out strategy to repay the loan.

Also, before some companies take out loans, they consider what they already have, just like in the example of @CryptoHeadlineNews.

So there is basically a higher possibility that a company can easily repay their loan without stress, while retail investors can have some little issues to repay when the loan is overdue. It's not as if a company cannot pass through challenges in loan repayment just as an individual would, but it seems they have a better chance than just retail investors.

A company can take out a loan to invest and encounter losses, but they still have their company capital to cover their loan, whereas an individual can encounter losses and may not have anything to cover the loan. As such, they can sell off some properties, like houses, cars, or other things that belong to them, just to repay the loan, mean while those properties they are selling is still vital to them.

Another thing I want to point out is that in business, the higher your investment, the higher your profit. Since Microstrategy invested $2.4 billion in Bitcoin, if Bitcoin just increased by 20%, they would have a profit of $560 million, which is huge, and they could use 5% of it to cover the loan interest. If the Bitcoin price also grows by more than 40%, it means more profit, and you can't compare that to a retail investor that can just take out a loan of $500–$20,000 and make a small profit and still cover loan interest from it, so they need a higher price to make enough profits.