In a move that could reshape the bitcoin lending market, Stone Ridge subsidiary NYDIG is preparing to channel one of the largest capital reservoirs in traditional finance — the insurance float — into bitcoin-backed loans. The news is detailed in 2024 Investor Letter From Stone Ridge CEO Ross Stevens, it immediately attracted attention across the industry after it was published on December 30.
A potential game changer for Bitcoin
Marathon Digital Consultant Sam Callahan, Comment On According to Callahan, improved lending efficiency could lead to “lower loan costs,” less selling pressure on Bitcoin, and ultimately “increased scarcity” and “higher demand and price,” fueling more institutional interest and broader adoption.
A 2024 investor letter written by Ross Stevens outlines how NYDIG, which has already facilitated billions of dollars in loans collateralized by bitcoin, intends to expand by taking advantage of the “float.” In insurance and asset management, float refers to investable capital held in reserve, which is often used to generate returns while maintaining hedging obligations.
According to the letter: “Now that we know that Bitcoin can generate cash flow when selling, how about using Bitcoin to generate cash flow when not selling? […] Our Bitcoin affiliate NYDIG is poised to enable all HODLers, including Stone Ridge, to expose their weapons – borrowed fiat currencies at a low rate – in the amount and at a time that suits them. […] Imagine float-powered HODLing. […] Stay tuned.”
Stone Ridge’s vision positions bitcoin-collateralized lending as potentially on par with traditional equity margin loans — both in terms of risk and ultimately in terms of pricing. According to the letter, Bitcoin’s realized volatility over the past five years is within the 40th to 80th percentile of the 3,000 largest US stocks, indicating that it is “as risky as a typical US stock.”
“This means that bitcoin-backed loans are realistically less risky, and certainly no riskier, than a plain vanilla, Reg T, or US equity margin loan,” the letter said, noting that current interest rates for bitcoin-backed loans are — at “S+~” 450 to ~950” – Not in line with the low interest rates on margin loans typical for equity financing. Stone Ridge expects this premium to compress over time, pushing Bitcoin-backed loans closer to the “Reg T margin loan neighborhood.”
The insurance flotation, made famous by Warren Buffett’s Berkshire Hathaway (which increased its float from $114 billion in 2017 to $164 billion as of December 31, 2022), represents an enormous well of investable capital. While Berkshire uses its float to fund acquisitions and investments, Stone Ridge aims to open similar avenues for Bitcoin collateral.
Bringing this huge capital supply into Bitcoin can generate a powerful network effect. The Stone Ridge letter envisions a cycle where greater liquidity and lower costs prevent early selling of BTC (“HODLing”), thus reducing supply in the open market. This decrease in supply could in turn boost the price of Bitcoin, leading to more institutional interest and increased adoption.
Callahan’s focus on the implications for Bitcoin holders and the broader ecosystem reflects Stone Ridge’s bullish outlook: “NYDIG is about to unleash one of the largest pools of investable capital in the entire financial system… This is a big deal.”
If successful, the initiative will allow Bitcoin investors to leverage their holdings without resorting to direct sales, preserving potential upside while having access to fiat liquidity. Stone Ridge says a more efficient lending market would maintain the narrative of bitcoin’s scarcity, further strengthening institutional trust and opening up the potential for broader mainstream participation.
At press time, Bitcoin was trading at $92,881.
Featured image created with DALL.E, a chart from TradingView.com