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What's the market for borrowers? What are people borrowing cryptocurrency for? With fiat interest rates at record lows, why not borrow fiat instead and use it

What's the market for borrowers? What are people borrowing cryptocurrency for? With fiat interest rates at record lows, why not borrow fiat instead and use it to buy crypto? Surely not all of the demand is coming from the unbanked? EDIT: My question was answered while I was typing it up :) https://news.ycombinator.com/item?id=25996264 https://news.ycombinator.com/item?id=25996264

dastx 6y ago
> With fiat interest rates at record lows, why not borrow fiat instead and use it to buy crypto? I just had a look and compared Gemini's calculator of lending, compared to Zopa's (UK p2p lender) calculator and, for a £10k loan, you'd be paying ~£500 in interest at Zopa (~14% APR), where Gemini claims you'll be getting $1.7k in interest (based on $11k lent and Filecoin's ~7% interest). My guess is Gemini's calculator is either purposefully or accidentally broken, or I'm missing something.
- ac29 6y ago
  The default time period on the calculator is 2 years.
  - dastx 6y ago
    Yep, I used 2 years on both calculators.
    - liuhenry 6y ago
      It's ~£500 payments per month (which covers both interest and some of the principal). The total interest comes out to £1,473.
jkhdigital 6y ago
Because nobody will lend you fiat to buy crypto? Interest rates for high-quality collateral (real estate, established business income, legalized theft of your citizens’ assets via taxation, etc.) are at record lows but credit cards for marginal borrowers still charge 20%+.
smabie 6y ago
Most entities borrowing are borrowing crypto as part of their trading operations. For example, I could borrow crypto to provide margin for my HFT market making strategies. A very popular use is to do rate/basis arb. So I borrow a crypto at say 10% interest and then use that to sell a future or swap that has a rate higher than 10%. So borrow at 10%, short a future with a annualized percent basis of 20%, and capture a risk free spread of 10%. Very sophisticated and institutional players are doing a lot of these kind of basis arb plays nowadays. It's pretty much free money. You need to be able to borrow though, as without leverage these rate arb strats don't yield compelling enough returns. If you're a crypto trading firm and not making at least 100% annualized, you're fucking up. It's not usual for sophisticated players to be making a 1-2% return a day in crypto. The wealth generation from crypto trading in the last two years is truly astonishing. Also want to note is that most of these obscenely high return strategies are delta neutral: they are unaffected by the price of crypto going up or down. There are some funds out there who's returns are derived from crypto exposure, but those are the shitty ones.
- mike_d 6y ago
  It is interesting to see crypto collectively become the things its supporters hated most about the traditional financial system.
  - smabie 6y ago
    Well there's defi, which is pretty exciting imo. There's a lot things in that ecosystem like flash loans (uncollateralized loans) that simply cannot exist in the traditional financial system. In many ways we are seeing a shift away from centralized exchanges towards decentralized, trustless transactions. The promise of crypto is very much alive!
  - dastx 6y ago
    Because cryptocurrency doesn't fix human corruption, sadly this seems to be a byproduct of currency, and industrialism among other things. All cryptocurrency does is give us a currency that removes centralisation.

dastx 6y ago

> With fiat interest rates at record lows, why not borrow fiat instead and use it to buy crypto? I just had a look and compared Gemini's calculator of lending, compared to Zopa's (UK p2p lender) calculator and, for a £10k loan, you'd be paying ~£500 in interest at Zopa (~14% APR), where Gemini claims you'll be getting $1.7k in interest (based on $11k lent and Filecoin's ~7% interest). My guess is Gemini's calculator is either purposefully or accidentally broken, or I'm missing something.

ac29 6y ago
The default time period on the calculator is 2 years.
- dastx 6y ago
  Yep, I used 2 years on both calculators.
  - liuhenry 6y ago
    It's ~£500 payments per month (which covers both interest and some of the principal). The total interest comes out to £1,473.

jkhdigital 6y ago

Because nobody will lend you fiat to buy crypto? Interest rates for high-quality collateral (real estate, established business income, legalized theft of your citizens’ assets via taxation, etc.) are at record lows but credit cards for marginal borrowers still charge 20%+.

smabie 6y ago

Most entities borrowing are borrowing crypto as part of their trading operations. For example, I could borrow crypto to provide margin for my HFT market making strategies. A very popular use is to do rate/basis arb. So I borrow a crypto at say 10% interest and then use that to sell a future or swap that has a rate higher than 10%. So borrow at 10%, short a future with a annualized percent basis of 20%, and capture a risk free spread of 10%. Very sophisticated and institutional players are doing a lot of these kind of basis arb plays nowadays. It's pretty much free money. You need to be able to borrow though, as without leverage these rate arb strats don't yield compelling enough returns. If you're a crypto trading firm and not making at least 100% annualized, you're fucking up. It's not usual for sophisticated players to be making a 1-2% return a day in crypto. The wealth generation from crypto trading in the last two years is truly astonishing. Also want to note is that most of these obscenely high return strategies are delta neutral: they are unaffected by the price of crypto going up or down. There are some funds out there who's returns are derived from crypto exposure, but those are the shitty ones.

mike_d 6y ago
It is interesting to see crypto collectively become the things its supporters hated most about the traditional financial system.
- smabie 6y ago
  Well there's defi, which is pretty exciting imo. There's a lot things in that ecosystem like flash loans (uncollateralized loans) that simply cannot exist in the traditional financial system. In many ways we are seeing a shift away from centralized exchanges towards decentralized, trustless transactions. The promise of crypto is very much alive!
- dastx 6y ago
  Because cryptocurrency doesn't fix human corruption, sadly this seems to be a byproduct of currency, and industrialism among other things. All cryptocurrency does is give us a currency that removes centralisation.