Here’s a legitimate unicorn start-up idea, but there’s a catch
If someone tells you they got a unicorn start-up idea, but they don't see a catch, they are either stupid, or they are lying, or both.
With that said, let's get to the idea
‘Financing Bitcoin’
In today’s world, you get finance/loans to buy everything, don't you?
From your homes to cars to holidays to even your regular coffee ( via credit cards), everything can be financed by loans through banks.
Why can't we offer loans to buy Bitcoin?
You might be thinking, I have heard of a lot of start-ups that offer loans for Bitcoin — yes, they offer loans on Bitcoin once you acquire Bitcoin and pledge that as collateral.
But there are no start-ups that offer ‘Loans to buy Bitcoin’ on your personal credit, and there’s a reason for this, which we will discuss in a few moments.
Why is this important?
The ability to buy something on credit is the cornerstone of modern finance; whether it's a mortgage, credit card, or personal loan, all these products enable you to acquire something much larger than your means. Besides, collateralized loans on Bitcoin come with a lot of strings attached, like margin calls, etc.
Imagine the same ability for buying Bitcoin without spending all your money, instead, you get a loan, buy Bitcoin, and repay that loan over 5 years or 10 like a personal loan or a mortgage.
Surveys show at least 10 million Americans have bought Bitcoin so far ( this number is rising every year). Globally, this number would easily be larger than 100 Million ( including yours truly ).
The market for Loans for Bitcoin is absolutely massive in 100s of Billions, potentially.
Many Bitcoiners dream of owning 1 full Bitcoin ( currently valued at $65,000 ) and would have their dream come true if someone could loan them this cash.
How it works?
Let's say you lend $10,000 to users with good personal credit to buy Bitcoin on behalf of the users and keep it with you.
Convert this loan to a monthly payment of $ 100+ interest spread over, say 100 months. ( so anyone can afford this payment )
As users repay their loans, give a portion of their Bitcoin back to them
Pros of this strategy:
As the loan is based on personal credit plus an Asset like Bitcoin, it's incredibly less risky compared to a simple personal loan
You don't have to sell the Bitcoin unless the user stops paying monthly payments for a few months.
No margin calls for Bitcoiners even if the price of Bitcoin crashes and the loan becomes underwater as long as the user keeps paying the monthly payments. The loan continues, and this gives the chance for Bitcoin price to rise back again.
Far less operationally complex compared to even mortgages or any other loans, as Bitcoin is a digital product.
Why can this idea work?
Millions of Bitcoiners buy Bitcoin monthly through DCA ( dollar cost averaging), which is buying Bitcoin regularly with their savings, this Bitcoin loan idea enables them to lock in a sizable quantity of Bitcoin instead of watching the price jump over the years, similar to buying a house on mortgage.
Just like mortgages, this ‘loan for bitcoin’ pushes the price significantly over time, which attracts more and more people to learn about Bitcoin and invest in this strategy, aka Virtuous cycle.
More people take loans from you to buy bitcoin -> prices go up -> as price goes up, higher more folks want to buy bitcoin via loans, rinse and repeat.
Bitcoin has been growing at 50% per year for the last 10 years, and offering loans to buy Bitcoin further boosts this price growth.
What’s the catch?
Every good strat-up idea has a catch, or else someone else would have done this already.
The main catch is simple — Banks that underwrite the overwhelming majority of loans in the economy don’t generally bet on things unless Central banks give permission to do so.
Central banks are currently skeptical about Bitcoin and view it as a passing fad even though the 15 years of history prove it’s here to stay.
Bottom line: Banks currently do not want to be underwriting loans for Bitcoin hence, the opportunity for you to become a unicorn start-up with this strategy.
Operational Manual
Executing this start-up needs attention in a few areas:
- Find people who are ready to lend money to your company at a reasonable rate (slightly above what banks offer on savings).
- Find people who want to buy Bitcoin through loans.
- Make sure your bank accounts are unharmed by maintaining good relations with your banking partners.
- Lawyer up — Get good lawyers to cover all your legal risks from day 1, or else you will attract legal action eventually.
- Be transparent and explain all the risks to all the parties clearly.
- Most importantly, find an investor / rich uncle who is ready to support you on this and even lend some cash to your Bitcoiner user base ( this solves the chicken-and-egg problem you face )
- Implement robust risk management practices so you can thrive over the years.
What happens if Banks start lending for Bitcoin?
This a far less risky proposition than you think of
- Banks wouldn't get into this for the next 5–10 years even if they did and could offer cheaper loans than you. You would simply be a prime acquisition candidate for your sweet exit to a ‘holiday on island’ lifestyle, so you needn't worry about that risk.
Why am I not interested in doing this start-up?
I have already had my fair share of start-up fun and am currently in no mood to start a new idea without risking my marriage :)
Anyway, best of luck to your unicorn journey if you so choose, and feel free to hire me as a consultant (can also provide some seed funding).
Hit me on Whatsapp if this ticks your interest
