Topic: [FULFILLED!] 10,000 BTC loan - LONG TERM (Read 7520 times)

Ah I see, at least you guys were early adopters and threw around 1000s of bitcoins.

Plus im sure youve got plenty more

The problem is that we had a collar on the loan.  Basically safeguarded both of us in case BTC moved huge either direction. 

The end result has been I will pay 5x the original loan in dollar terms, and he is getting back significantly less BTC. 

We both lost in some capacity. 

The lender should let you keep what 10k btc was worth back then in $$. Seems like you had to repay a lot more back and he made one he'll of a good deal.

The loan is paid through the end of this year.....and over half of the contracted principal payments have been made.

Looking back, it has been a pretty awful deal for both me and the lender. 

Man.  Think.  This loan at today's rates would be $6,000,000.  That is just insane.

Out of curiosity: any updates?

Another quick update.......payments have been made through January of 2014.  Next installment is not due until February, 2014. 

Another update for ya'all.

I have continued pre-paying the loan, and the next obligated payment is not until November, 2013.  

I thought through all the pitfalls when I took the loan out, well aware of the risks.

Fortunately I earn in BTC through my 100 GH/s farm and also wrote a collar on the exchange rate into the loan contract.  My pain will be limited if the price increases 250% again......but I definitely don't want it to! 

It could get  more brutal.  Borrowing in a currency you don't have equivalent assets in, or similar revenue in, is in general a bad idea.  At the very least  a huge gamble.

And unlike the homeowners  thinking they were getting a great deal borrowing in CHF or JPY, you don't have manipulative central banks trying to rescue you.

Well this has been a pretty entertaining read.

PS. Buy options? You'd be in a better position than most seeing how you're already short BTC.

Figured I would update this thread again to keep everyone appraised.

Payments have been made for April, June, July, and August of 2013.  The next contractual payment is not due until September of 2013.

I still intend to aggressively pre-pay the loan to mitigate my exchange rate risk, which has thus far been BRUTAL. 

Man, I think that every day.

I thought I had it covered with Bitcoinica, and, well.....we saw how that ended.  I am still waiting for my BTC back.......

Call options on Bitcoin would be great if the legal framework for them wasn't so murky.

Another update for those following this loan with piqued interest:

The January, February, and March payments have been made.  The next payment is not due until April, 2013.

I do, however, intend to continue aggressively pre-paying the loan in order to decrease the exchange rate risk that has already hurt me pretty good. 

Of course it was.  I'm sure you are a globe trotting, soros advising genius.  It is apparant from your complete disregard for credit worthiness and sole focus on yield. 

You must have been wildly successful given that is WAS your "career".

You people crack me up. 

Don't want to get in a pissing match but my career was in the global bond markets.  So yes, it's clear you don't know anything about it.

ROFL.  You just popped off to a guy who has his CFA charter, his CPA, and runs a financial firm with 500 million under management. 

Obviously I don't know anything about it. 

Of course they're not attractive.  That's why the rates are high!  Not sure about the meaning of "you being de-valued" is - defaulted on, sure - if you mean currency devalued, then they can only redenominate debt under domestic law.  Much of it is international law, or in a foreign currency in the first place.

There are many companies borrowing at or yielding over 10% in the corporate bond market, as you would know if you knew anything about it.

I do not think I would call Portugal/Greek bonds a very attractive credit risk.  The chances of you being de-valued are very high. 

Also, most publicly traded companies can currently borrow at sub-4%......plus they get a tax write-off for the interest. 

10% corporate lending would be laughed out of the building. 

Well, let's start with sovereigns.  Let me introduce you to Portugal and Greece, you may have heard of them

For corporates, there are so many bonds yielding 10+% that I'd guess you don 't know much about bonds....

Many companies would kill to borrow at 10% from a bank, at any-time call.

Hmm, I had been thinking that my Long+Short baskets idea would not have worked for this due to needing as much bitcoin as one was trying to hedge, which in this case would have been as much as one borrowed.

But it just struck me... what was really used out in the world was fiat, not bitcoin. So maybe a BTCslUSD basket type of thing could have been useful. Buy the baskets, sell the long on fiat piece, hold the short on fiat piece. That would leave you short on fiat, which is basically what borrowing fiat amounts to.

This stuff still confuses me though so maybe that is totally wrong/confused view of it... Maybe exactly the wrong way around?

-MarkM-

 

I used Bitcoinica to hedge this loan, and now I have nothing to show for it.

It still hurts.....

I hate to say it, but we need something like Bitcoinica. You could have taken out a long and been fine when USD/BTC doubled, and I could have taken out a short and been covered when BTC dropped from 15 to 8 (For the record, I actually sold at 15, but holding BTC does make me want to hedge a bit.)

I can understand that.  The lender is very well known on the forums, and has been part of Bitcoin since long before many of us even heard of it. 

I asked if I could identify him publicly, but he prefers to stay anonymous.  I am guessing that is in part to avoid the deluge of requests that would flow his way should people know he can lend such amounts. 

Fortunately for most deals that go down around here, both parties confirm it and the results are known to all. 

This is indeed awesome.

However it has occurred to me... and this actually is not really to do with you at all (or let us say, one surely hopes it is not)... how easy it could be for someone to just make stuff like this up. It'd be even better than pirateat40's bunch of OTC ratings of 10, it might never even occur to people to think anyone would make this stuff up.

SO I do hope that someday the big fish who made the loan does 'fess up, or something, so the next big scammer doesn't get to point at this great story to "prove" how "legit" his or her own great backstory is...

Again, I am not at all suspicious of this story.

It is the next one I am worried about...

-MarkM-

Another quick update regarding this loan:

Both the November and December payments have been made, and the next payment is not due until January, 2013. 


On a side note, given the fiasco that is Pirateat40 and BTCST, perhaps it is time for lenders to be a bit more discerning in their lending and have more reasonable return expectations.  Someone offering 3,300% APR is either gambling with your money or has no intent to pay it back.

People bitch, moan, and attack me for the fact that I only offer 10% to my lenders.  Wake up people.....that is a reasonable rate.  Expecting more is silly and an invitation for scammers. 

Example:  "Fuck you, I will never lend money at 10%!  Oh, this guy will offer me 2,000% per annum.....hell yes, take my money!" 


A scammer is going to offer whatever it takes to part you from your funds.  To compare those rates with a loan that will ACTUALLY BE PAID BACK is the height of ignorance. 

Just my .02 bitcents. 

And just as easily we could repeat the crash of last fall, then I get paid to have borrowed money.  Also, did you not notice the accelerated payments?  I am not holding this thing for 60 months.  Not even close. 

None of us has a clue how all of this will turn out.

At this rate and what I expect BTC would grow to over 60months and also taking note with difficulty increases, I suspect you would be repaying >200% interest on this over 60months, hard luck ouch.

Another update for those of you following this loan:

The 6th payment was made today, well ahead of schedule.  The next payment is not due until November, but my intent is to continue aggressively paying down the loan to lessen the effects of any further price increases. 

I have already taken a f**king bath with BTC/USD near doubling since the loan origination....I cannot express how furious I am with Bitcoinica at this point. 

Oh well, a risk I knew up front. 

I reckon that's be quite an expensive way to hedge over 5 years, with the constant need to roll over contracts from month to month.

PM sent.

One of the options platforms maybe?

Sorry to hear that, and I hope you get your money back soon. Honestly, I'd just look for some kind of OTC contract with savvy people around here or on IRC. You get much more precise control over your terms. If it's big enough, you might want to mail a physical contract, but otherwise a GPG-signed contract would be sufficient to destroy someone's WOT reputation if they screw you (of course, you'd only want counterparties with high reputations to begin with, so they have something to lose there).

I've been doing GPG contracts for a while with people on #bitcoin-otc and have some fairly large and valuable contracts arranged that way.

Edit: by GPG contract, I mean a text file explaining all the terms and the parties involved that is signed using GPG by all parties.

Just a quick update for those of you following this loan with curiosity:

I recently made the July payment (early obviously), and the next payment is not due until August.  My intent is to continue paying down the loan quickly, as I anticipate the exchange rate and difficulty to keep climbing.  The announcement of the BFL SC has also got me a little worried. 

On a related note, the hedges I had set up at Bitcoinica worked great......until Bitcoinica went tits up.  Now, I am not only denied the hedge as BTC continues the move upward, I am also waiting on a refund of 100's of BTC I had on deposit.  Any ideas on where to go in order to structure another hedge would be appreciated!

regards,

-Yochdog

lol.....fun, but no.  Went to a much more profitable use than that!   

Translation: "brb, buying a 600cc motorcycle"

Just wanted to drop a line to everyone following this loan with curiosity.

The first payment was made last week.  We actually changed the terms to monthly payments, at the request of the lender. 

Also, the principal amount was bumped to 11,000 BTC.

Just FYI.  I am absolutely stoked by the implications of large BTC lending like this. 

Was it Satoshi?

I'm surprised and giddy. It is awesome that someone stepped up for this, going to keep tabs on this as I'm curious how it plays out.

Have you considered trying to arrange some long-term OTC call options with MPOE or other willing option writer?

The most effective hedge comes from my mining farm. 

Beyond that, I am going to be using some bitcoinica contracts to guard against huge moves upward.  More of a shock absorber than anything. 

Proff of ID, proof of address, letter from my firm confirming the equity sale, and a legal promissory note. 

No accountant. 

Thanks for the well wishes!

For the time being, the member asked I refrain from disclosing his username.  I will leave it to their decision should they want to come forward and comment on the thread. 

I am in the process of converting the coins in several venues, and will do it in phases.  Should have very little impact. 

Congrats! This is awesome! Did you figure out some ways to hedge it?

And as a joke: if you are going to dump 10k on the open market please PM in advance so we can move in and by a lot of coins shortly after 

Anyway cool that this loan is fulfilled and I'm also quite curious who took it. Can you elaborate on precautions were taken?

Is the promissory note a legal contract?
Was an accountant involved?

Also good luck on the equity investment.

Congratulations! Does the lender want to remain anonymous? There aren't that many people around here that can handle loans that big.

Also, do you plan to sell the coins on MtGox or arrange a private sale without moving the market? When trading large amounts, I typically try to find someone in #bitcoin-otc, first because it can potentially be slippage-free, but also because it's just a more subtle way of doing things (and I love to be subtle). Since I'm overall long bitcoins, I'd prefer not to do much to lower the MtGox price where possible

Wow, congrats! This is huge indeed.

I have an update for those interested in this loan:


I have completed negotiations with a long-time forum member, and have executed a promissory note as of this morning.  He fulfilled the loan for the entire amount, and at the terms I desired at the outset of the post.  I am grateful to him for taking down the whole loan, thus saving me from having to seek out dozens of smaller lenders. 

I am really excited about getting the loan done, as it is the first I am aware of that encompasses such a large amount of BTC, a reasonable interest rate, and the proceeds being used for aquiring existing business interests.  I think the implications are profound for bitcoin. 

Yet another step forward for bitcoin! 

Thanks for the feedback.....very well written, and excellent points! 

I'd interpret DeathAndTaxes's comments as being about a bank's legal and collections infrastructure rather than about what information they get. A big bank has entire teams whose job is to get money back from defaulters, and has existing relationships with collections agencies and lots of experience doing all that. My general attitude with loans in bitcoins is that for most smallish loans I don't even bother asking for identity: if your online reputation makes me believe that you're fairly unlikely to run with my money, then you'll get the loan; if I'm unsure enough that I'd want identity verification, I just won't offer the loan at all, simply because it's not worth my time to chase down people who default on small amounts of money.

With the quantities of money you're asking for, on the other hand, I (or other lenders) would obviously need to ask for identification. But if it ever came to collection/legal action (which seems unlikely, given your reputation), we'd have to spend a lot of time/money getting lawyers involved (for a nearly unprecedented legal action, suing someone for virtual goods!) and/or selling debt at a loss to a collections agency. I think that more than justifies an increased rate over a bank.

Anyway, that's all I wanted to add I wish you luck in getting the money and earning a lot more on top of it.

tl;dr: economies of scale on collections infrastructure allow for lower interest rates

Could happen!  Gonna be interesting. 

2-3 years ago 10,000BTC bought a pizza, 2-3 years from now it will buy a house, and 2-3 years after that people will wonder why anyone ever loaned millions of USD on a forum.

Thanks Slider!  Much appreciated!

Man, did you read the whole thread?

I am willing to provide extensive details to interested/qualified lenders.  I am simply not going to throw all of my personal/business details in the OP and hope it works.  The thread is designed to spur interest from lenders, elicit feedback, and lead to discussions privately where details will be worked out.  

I am not asking anyone to loan BTC to me anonymously and just hope for repayment....where in the world did you get that impression?  

I just want to add that I've had dealings with yochdog (investing in his mining operation) and he was very professional and everything went smooth, so +1 to his rep.

Hey Vampire,

It seems that there is a very healthy split on where BTC prices are headed, so this is just one more way for the differing factions to place their bets.  

Where is the money going?  It will be used to purchase additional equity in the financial firm I work for, the cash flow from which will be used to pay back the loan.  I also have the 23 GH/s mining operation that produces sizeable BTC.  

I can secure the loan with physical property, the details of which would be worked out between myself and the lenders.  I am thinking it could be my brokerage account, the title to my brand new truck, or even the GPU's that power the 23 GH/s.  

I would provide a credit report to properly vetter lenders.  

Thanks!  

If you can get 5.5% from your bank then you should however part of the reason you can get 5.5% from your bank is
a) proof of identity
b) proof of assets
c) proof of credit

Maybe 10% is viable, hell maybe even 7% is viable.

Still 10% on an anonymous no information provided just hope for the best loan vs 5.5% bank has a signed contract, legal rights, and verified debtor isn't exactly apples to apples.

The question is how much information are you willing to provide to reduce the risk to creditors and thus the risk premium in the interest rate?  If it is nothing then 10% is a joke.  Just because it is double your banks rate isn't really relevant.  2x the return on a 100x the risk isn't good business.

I saw your thread, Matthew, and that was actually what spurred me to do this.  I think 2-3 years from now, we will look back on the "huge" loans that are being attempted today, and think "how quaint!".  The pace of change and maturing nature of the bitcoin economy is pretty awesome. 

Hi Patrick,

I knew the interest rate was going to be a tough sell, but I am hoping that lenders will balance the relatively low rate against the sheer coolness of extending the Bitcoin economy into realworld finance.  Like I told Znort....at the end of the day I still have to make a spread on this deal, and 10% is pushing where I can do that comfortably.  As most of us know, interest rates in the traditional finance world are much, much lower than what we see on the forums.....trying to bridge that gap is going to be a challenge, but I am hoping this can be the first deal to do so!

Hey Znort.....you make good points.  Let me see if I can give some suitable answers. 

In regards to the currency risk, and whether I could withstand a x10 price hike:  Let's assume 4,000 BTC of the loan is to be repaid in BTC.  The quarterly payments would be approximately 250 BTC.  My shares in Bitcorp yield several hundred BTC a month(900 per quarter) currently, which gives me over 300%+ coverage on BTC debt payments.  Now, lets assume with a x10 price increase, the difficulty spikes as well.  Even if the difficulty goes to 4,000,000...I will still have 100+% coverage.  Finally, I would be willing to post a reserve account, maybe comprising 2 quarterly payments to be held by a trusted 3rd party, that would be used in the event of any shortfall on my behalf.

On the rate being offered:  This is clearly a stumbling point.  To simply cut to the chase, 10% is about all I can offer and still make the numbers work on my end.  At the end of the day, I want this loan in order to finance a better yielding asset.  If I give away the entire profit margin just to engage in a cool academic excercise, the economic motive disappears.  I can get 5.5% at my bank, but am willing to pay the additional 4.5% in order to help broaden the possibilities for Bitcoin.  Any higher than that, and I start to squeeze the net interest margin too much. 

Does that help?   

Hey all,

First off, I really appreciate you all taking the time to give feedback, offer advice, and ask questions.  There is an amazing amount of collective knowledge/ideas on this forum and it is great to be able to access it. 

I will try and respond to all of the posts one by one....just wanted to get a thanks out there first. 

Pick any high yield bond etf, check holdings:

http://finance.yahoo.com/q/hl?s=JNK+Holdings

Hca 6.5%   N/A   1.48
Sprint Nextel 144A 9%   N/A   1.47
First Data 12.625%   N/A   1.45
Harrahs Oper 10%   N/A   1.18
Engy Future Inter Hldg Co Ll 10%   N/A   1.09
Cit Grp 7%   N/A   1.07
Dish Dbs 6.75%   N/A   1.02
Ally Finl 8.3%   N/A   1.02
Clear Channel Ww Hldgs 9.25%   N/A   1.01
Calpine 7.5%   N/A   1.00




First Data pays 12.6%.... But with ETF that you can sell at any point of time and  you get 7.4%, also there are triple tax free bonds for NYC.

Any brokerage in the world?

Where did you get these bonds! I need to buy some...

The problem is that 10% is very low for a such loan. I have 7.5-7.8% bonds that are much safer investment than you.

But also:

I predict that BTC will price will grow and lending a large quantity of BTC requires much higher interest. And converting USD to BTC will incur a fee that with 10% isn't acceptable.
I haven't see what are you planning to do with these money (with details, monthly for the next 3 years). Shakaru comes to mind, you must prove that you wont end up like him.
Are you able to secure this loan with any physical property? Will you agree to a credit check?


Plenty of other issues...

Not completely.  But concentrating it into one spot like that is not the typical credit risk of this forum.

(As disclosure, I have a small, short-term loan from znort because it was easier doing that than moving a few thousand $$ into coins this week.)

I can see one possible [risky] way how to do it;
If somebody buys 10,000 coins from mtgox (USD 50,000-60,000), then lend coins for you and pray for you...
I'm not that guy, sorry

I think miners [like me] do not want to spend 10,000 mined coins... [if someone has left so many ]

Interesting indeed, watching

And people thought I was crazy asking for 2,000.  

10k is a lot, i want to see how this going.

Interesting (and thread noted).  Certainly no commitments today, but it is only 10,000 coin.  Allowing for a longer dated lower rate of interest once things settle down, shorter term is still much more expensive, and 12 months will net high yield, but I am not doing that yet.  Six month bonds may yet still pay reasonable rates and I'm considering those for late April.  Thus, initial reaction is way too low on the interest rate - interesting does not equate to simple profit.

Mr Serious (those that know will understand)

That was certainly the largest hurdle I anticipated as well.  

Bitcorp is completely debt free, has assets in excess of $10,000, and needs only very low prices of BTC to remain highly profitable.  As for the other contingencies, I do not think I would be willing to do more than 40-50% of the loan with BTC repayment to largely reduce the exchange rate risk.  

Details on myself and what I do will gladly be shared privately with qualified, interested lenders.  

Thanks for the feedback, I know there are things I have not thought of yet.  

No formal architecture that I am aware of.  I would like to think we can put together something more substantial than just tossing coins! 

I absolutely plan on being completely transparent on the details of the loan, and post a spreadsheet showing amounts owed, amounts repaid, and any other info that the lenders desire to be shared. 

My primary concern is the interval. Five years is like an aeon in Bitcoin terms. Will Bitcoin Mining CO survive this year? Will you stay interested in acquiring BTC to reduce risk? Will Bitcoin itself survive, or will the exchange rate be above 1000$? It seems to me that there needs to be a backup plan covering all cases.

Also, maybe some details about who you are and what you do might help.

Do we have any architecture for doing a Kickstarter-esque experience, or are we just tossing coins at addresses for the time being.

I have been thinking about this a fairly long time, and think the time is right to put the proposal out there.  


10,000 11,000 BTC 5 year note:

-Minimum single commitment of 100 BTC (not interested in 1000 different lenders)
-Interest of 10% per annum
-Re-payment will be in 20 60 equal, quarterly monthly payments
-P & I will be amortized over the lifetime of the loan.
-Lender(s) must establish up front if they wish to be repaid in BTC or USD



Let me try to head off some obvious inquiries....

Q:  What in the world do you need 10,000 BTC for?
A:  I am in the process of buying out the senior partner in my firm (several percent a year), thus need capital.

Q:  Why not go to a bank?
A:  This is 1000% more interesting.  Really, the implications (if this works) are really profound.  It would mean individuals are able to crowd-source large amounts of financing without playing the rigged game with banks.  I have no problem securing bank financing, but I hate the system, just like most Bitcoiners.  

Q:  How can the lender(s) be assured of willingness, and ability to repay?  
A:  Couple reasons:  My record as a trader/borrower is pristine.  The equity in the firm yields substantially more than the interest rate on the loan, so I am locking in a spread.  Further, I will fully collateralize the loan.

Q:  What if BTC spikes and you have not the funds to buy sufficient BTC to repay those who chose to be repaid in BTC?
A:  Great question.  Fortunately, I own the vast majority of Bitcorp Mining CO (totally different venture).  My share yields several hundred BTC per month.  This, combined with my other substantial means, gives me very high confidence in being able to secure the necessary BTC.    

Q:  Why would someone loan you BTC at 10%, when people are offering crazy annualized rates on smaller loans?
A:  Most of the other loans I see are extreme short term in nature.  Its great if you can keep rolling over the loans to achieve the crazy annual rate, but you most likely cannot (this also increases the risk of fraud/scam as you deal with dozens of borrowers).  I feel that the rate I am offering, though lower than the norm, is a good deal for persons looking to invest BTC for a long time horizon with minimal ongoing hassle.  

Q:  Sounds interesting, but I really need more info to feel comfortable with this.
A:  I am willing to discuss more details with serious potential lenders.  


Just a final word.....I realize this will come off as crazy to many people.  I also know from past experience that it will attract some trolls.  That being said, try to be civil.  I am completely serious about this, and would love to see it work.  I think it would be great for BTC as a whole, and show tantalizing potential for future possibilities.

Constructive feedback is desired, and I am happy to answer any questions.  Let's do this!