This is an opinion editorial by Mickey Koss, a West Point graduate with a degree in economics. He spent four years in the Infantry before joining the Finance Corps.
This article is not financial advice – just a financially illiterate psychopath doing some math.
As the price of bitcoin falls, I found myself thinking about Michael Sayer and the strategic use of debt to basically outperform everyone else in the world. It made me think, maybe I could have done something similar. A pretty standard dollar-cost average (DCA) is a daily purchase of $20-$25 per day for a referendum on a budget.
The question I had was what would it look like if I converted the $20 daily DCA into loan payments and brought those future SATs into the present.
To compare the two, I found a quote for a personal loan as close to a $20 per day DCA payment as possible. The actual quote is below.
The price is $22,180 at the time of writing. Let’s assume a $25,000 bitcoin price, just to add a bit of conservatism to the calculations.
At $25,000, a loan of $36,000 would give you 1.44 bitcoins. If you multiply the $605.26 monthly payment by the 84-month loan term, you can see that the loan will cost you $50,841.84.
If we divide $50,841.84 by 1.44, we get a bitcoin value of $35,306.83 for you, which breaks down even compared to the cost of the loan. If you think bitcoin will top $35,000 in seven years, that’s a great deal to me.
But what about DCA?
Buying $20 on $25,000 bitcoin is 80,000 sets. If we take the 1.44 BTC above, or 144,000,000 SAT, and divide it by the 80,000 SAT DCA, you get 1,800. This means that at a constant price of $25,000, it would take you 1,800 days to move DCA to 1.44 BTC at $20 a day, or 4.9 years.
So, essentially, if bitcoin were to stay at $25,000 or less for the next five years, a $20 a day DCA strategy is mathematically better. But if you believe that BTC will generally continue to rise over time, converting your DCA to a loan may be beneficial. Even with that 10% interest rate, bitcoin would only need over $35,000 at the end of the seven-year period to top you. Honestly, that sounds conservative to me.
At these price levels, Michael Saylor’s strategy is starting to look quite attractive. While I can’t, in good conscience, recommend it to anyone, I thought it was an interesting subtle example that sheds a little light on where the sailor’s head might be.
Happy Stacking. I’ve always loved these fire sales.
Just to reiterate one last time: Definitely don’t do this. This is not financial advice.
This is a guest post by Mickey Koss. The opinions expressed are solely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.