Should Banks Offer Yield on Your BTC?

Two of Bitcoin’s leading thought leaders are at odds over whether banks can – or should – provide a sustainable return on their customers’ BTC deposits.

Michael Saylor, executive chairman of MicroStrategy, the world’s largest corporate Bitcoin owner, said in a recent podcast appearance that Bitcoin could become a form of “perfect capital” that also generates returns for its holders through digital banking services.

In contrast, Saifedean Ammous, author of the popular Bitcoin book “The Bitcoin Standard,” countered that sustainable returns are not possible with a fixed-supply asset like BTC.

Can Bitcoin Yield Really Work?

According to Saylor, the first generation of “digital banks” to offer Bitcoin yields were companies like BlockFi and Celsius – which ultimately went bankrupt due to irresponsible management.

Both firms’ returns were created using lending, borrowing, and remortgaging strategies, but they collapsed when these firms were liquidated on their crypto-backed loans. That said, if the same services were provided by traditional banks with “adult supervision” and risk controls, Saylor believes they could provide Bitcoin returns in a sustainable manner.

“The best situation would be for the U.S. government to back one of the ten largest banks that would then give you a yield on your bitcoin and then make the loans,” Saylor said. That way, he argued, megalithic balance sheet firms like JPMorgan could generate a “risk-free” 5% yield for their clients on their bitcoin without them ever having to sell it.

Saifedean remains skeptical, however. “Ultimately, I don’t think this model can work without a lender of last resort,” he said. “I think people are going to learn the hard way that you shouldn’t use this type of lending.”

Lender of last resort

“Lender of last resort” refers to a central bank that can print money to bail out insolvent commercial banks and their creditors – much like what happened in the regional banking crisis in March 2023. Saifedean’s book spends a lot of time chastising the misdeeds of central banks that enable money printing that devalues ​​people’s savings.

“If everyone has their Bitcoin at 5%, how are we going to produce more Bitcoin?” the economist asked. “Ultimately, we will have to pay for more Bitcoin than there are Bitcoins in existence.”

Saifedean had previously made a similar remark to Celsius CEO Alex Mashinsky in 2019, before the latter’s company went bankrupt three years later. Mashinsky’s fraud trial was set to begin this week, but it has been postponed until January 2025.

In response, Saylor stated that big banks are backed by the government and therefore cannot fail unless the US government itself fails. Furthermore, he stated that if holders cannot generate a return on their bitcoins, then BTC will be a “non-performing” asset that will be no better than government bonds that yield 0% returns.

“We need a functioning banking system to move capital,” he said. “Why would you apologize for receiving a return on your capital?”