$MARA lends $BTC for interest income | How much are they making for this risk?

Summary

In this video, the speaker discusses Marathon Digital Holdings (MARA), the largest Bitcoin mining company, and their recent decision to lend out a portion of their Bitcoin holdings (7,377 BTC) to generate yield. The speaker explores why institutions borrow Bitcoin, the associated risks, and provides a rough calculation of the interest earned. They caution against the risks of lending Bitcoin, emphasizing the importance of self-custody and long-term holding. The video also offers a glimpse into future content, comparing MARA’s strategy with that of MicroStrategy and examining its potential financial impact.

Takeaways

• 😀 Marathon Digital Holdings is the largest Bitcoin mining company, with a 50 EH/s hash rate.
• 😀 Marathon has recently lent out 7,377 BTC to generate yield from third-party borrowers.
• 😀 Institutions borrow Bitcoin to gain exposure without purchasing it, paying interest in return.
• 😀 Bitcoin is viewed as pristine collateral, with growing potential for lending and borrowing against it.
• 😀 Marathon's total Bitcoin holdings amount to 44,819 BTC, of which 16% has been lent out.
• 😀 The company has earned $3.9 million in Q3 2024 from Bitcoin lending, which translates to an annualized estimate of $15.6 million.
• 😀 Based on rough calculations, Marathon's Bitcoin lending is yielding approximately 2.26%, which is relatively low.
• 😀 The lending rate may increase as Bitcoin's integration into traditional finance expands, potentially making lending more profitable in the future.
• 😀 Lending Bitcoin, though profitable, carries risks, as seen with the failures of BlockFi, FTX, and other high-leverage crypto institutions.
• 😀 Marathon's Bitcoin lending strategy contrasts with traditional cash management practices, where companies park cash in low-risk, interest-bearing assets like T-bills.
• 😀 The speaker prefers self-custody and does not endorse lending Bitcoin for a low yield, believing holding Bitcoin is more valuable than earning a modest return.

Q & A

What is the main focus of this video?

The main focus of the video is on Marathon Digital Holdings (MARA) lending out a portion of its Bitcoin holdings to generate yield, as well as the risks and rewards associated with Bitcoin lending.

How much Bitcoin has Marathon Digital Holdings lent out?

Marathon Digital Holdings has lent out 7,377 BTC, which is approximately 16% of their total Bitcoin holdings, which are around 44,819 BTC.

What is the reported interest income from Bitcoin lending for Q3 2024?

The reported interest income from Bitcoin lending for Q3 2024 is $3.9 million.

What is the annualized yield based on the Q3 2024 interest income?

Based on the $3.9 million earned in Q3 2024, the annualized yield from lending Bitcoin is calculated to be approximately 2.26%. However, the speaker notes this could be an underestimate.

What are the potential reasons why institutions or exchanges would borrow Bitcoin?

Institutions may borrow Bitcoin to gain exposure to it without directly buying it, while exchanges might borrow it to balance their reserves and maintain liquidity.

What are the risks involved in lending Bitcoin according to the speaker?

The risks of lending Bitcoin include market volatility, potential liquidity issues, and the possibility of being over-leveraged. Past failures in the crypto lending space, such as BlockFi, FTX, and Three Arrows Capital, highlight the dangers of lending Bitcoin.

What is the speaker’s stance on lending Bitcoin?

The speaker is cautious about lending Bitcoin, preferring to hold Bitcoin in self-custody rather than seeking yield through lending, due to the associated risks and the current immaturity of the crypto lending market.

How does the yield from lending Bitcoin compare to traditional financial products?

The yield from lending Bitcoin is relatively low at 2.26% compared to traditional financial products like Treasury Bills (T-bills), which currently offer interest rates around 4.5%.

What are some of the risks highlighted in the crypto lending industry?

The risks highlighted include the possibility of over-leveraging, poor management of collateral, and the failure of platforms such as BlockFi, FTX, and Three Arrows Capital. These incidents show how lending Bitcoin could lead to significant losses in volatile market conditions.

What future analysis does the speaker plan to conduct regarding Bitcoin lending?

The speaker plans to analyze what would happen if MicroStrategy, another large Bitcoin holder, followed a similar lending strategy to Marathon Digital Holdings. They will explore how such a move would impact MicroStrategy’s earnings per share and its overall financial health.