If you are one of those
chaps that
believe bitcoin is a new asset class with a reliable, albeit volatile,
long term boon due to the intractable irresponsibility of US government
monetary policies, there is a strategy to use your bitcoin to make tons
of free cash flow. I cannot take credit for most of the ideas
recounted in this work, but commission-free DSTs and turning your
bitcoin into a passive stream of cash flow I can proudly claim as my
original ideas.
Mind you, this will only work if bitcoin remains a long term growth
asset. If you do not have confidence in bitcoin’s
long term
growth prospects, this DST investment is not for you.
The strategy is to borrow at low rates against your bitcoin, and invest
those funds in a bitcoin based call option writing EFT. A
call
option writing EFT is an exchange traded fund that writes call options
on bitcoin in exchange for cash flow in the form of options
premium. In the options market there are traders that will
pay a
premium for the right to own your bitcoin at a higher price within a
contracted time. If the bitcoin goes up, the EFT keeps the
options premium, plus the difference between the market price of the
bitcoin at the time the option was sold and the strike price of the
option, and delivers the bitcoin to the speculative trader.
If
bitcoin trades sideways or goes down during the option’s
expiry
and doesn’t close above the strike price, the EFT keeps the
bitcoin and the premium.
Because bitcoin is such a volatile asset, the premiums are
mind-numbing. The Roundhill Bitcoin Covered Call Strategy EFT
(YBTC) yield is 44.35% at the time of this writing, which is not
unusual for this EFT. Since bitcoin is so volatile the
premiums
for option calls are astronomical.
Of course the price of YBTC is volatile because of the wild prices of
its underlying asset. However, YBTC does the best job of all
other bitcoin call writing option EFTs at maintaining the
fund’s
net asset value. That is, the price of YBTC is less volatile
than
their competition.
My strategy is to buy YBTC on bitcoin dips, where the YBTC NAV is
relatively low. I help maintain my cost basis in this
investment
by reinvesting YBTC’s substantial dividend back into YBTC
when
YBTC NAV is trading lower than my cost basis. Then I cash
flow
YBTC dividends when YBTC NAV exceeds my cost basis.
While YBTC will never match the price gains of bitcoin, YBTC NAV will
grow over time to consistently exceed my cost basis as bitcoin rises in
price over time. This is because the YBTC NAV will
consistently
grow by the difference between bitcoin’s market price and the
higher price strike YBTC repeatedly writes calls on and gets premium
from.
Eventually, the YBTC NAV will consistently rise above my cost basis,
and my DST will receive consistent mind-boggling yield as long as
bitcoin remains a long term growing asset. YBTC will never
match
bitcoin’s parabolic growth rate because they’re
exchanging
bitcoin’s burst of parabolic moves for consistent
premium.
But as long as bitcoin remains in a long term growth stage, YBTC NAV
will exceed my cost basis, gushing the high yield cash flow into my DST.
I’m not investing in YBTC to capture parabolic bitcoin
moves. I own bitcoin for that. I’m just
using low
cost bitcoin collateralized loans to make outsized long term yield on
my bitcoin.
As of this writing, you can borrow the US dollar based Tether
stablecoin collateralized by your bitcoin at a 3.69% interest rate with
over $6 billion in supply on smart contract based Aave’s
platform. Other sources of low cost bitcoin collateralized
dollar
loans include:
Centralized platforms available in US (traditional finance with company
3rd party risk)
Crypto.com
Unchanined Capital
Coinbase.com
Ledn
Strike
Arch Lending
DeFi platforms (smart contract based)
Aave
Compound Finance
Sovryn Zero
The same strategy may be employed with other asset classes you invest
in with confidence of long term growth, like gold-based (GLD, IAU), and
silver-based (SLVO) option writing EFTs. I have more confidence in
bitcoin and YBTC’s stable NAV option strategy management.
Of course prudence must be exercised in the amount of borrowed
leverage to avoid liquidation risks on the bitcoin collateralized loan.
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