Category: Business

The findings add evidence to a debate that has drawn warnings from bank executives. Bank of America CEO Brian Moynihan warned in January that as much as $6 trillion in deposits could move into stablecoins and related products offering returns, potentially reducing lending capacity and raising borrowing costs.

The effect is partly based on where issuers put their reserves. A December Federal Reserve staff analysis explained that money placed in stablecoins can return to banks as issuer deposits, changing who supplies banks’ funding even when total deposits remain unchanged.

Larger, uninsured balances could require banks to keep more liquid assets and leave less room for long-term loans that financial institutions issue.

Paying more to retain customers also raises banks’ funding costs. The Fed analysis suggested banks could target better rates at customers most likely to switch, while keeping lower rates for less mobile depositors.

The BIS paper does not establish losses of bank deposits or lending. Its sample covers one high-rate episode, and the findings may change as yield-bearing stablecoins and tokenized money market funds gain ground.

Banks “retain some influence over the pace of that adoption through deposit pricing,” the authors wrote.

In contrast, the $UNI price has fallen by over 30% from its recent peak of $10.90. Darkforth noted that $UNI inflows to Binance reached their highest levels of the year during this period.

The fact that inflows into the stock market exceeded $40 million on some days at the end of September revealed the magnitude of the movement. The Z-score, which measures the deviation of inflows from the usual level, also rose above the 4 level on multiple occasions.

The analyst says that while stock market inflows are still high, they are starting to slow down. He believes that if this trend continues, the correction may be over.

*This is not investment advice.

One Bitcoin bet, three different bills

Someone who buys $10,000 of Bitcoin with cash has no interest payments to make while holding it. The coins can rise or fall in price without a lender demanding repayment.

The Federal Reserve’s interest-rate release showed a 4.26% three-month Treasury constant-maturity yield for Oct. 13, the day before the CPI report. While that’s an annualized market benchmark, it still illustrates what we call opportunity cost. If $10,000 could earn 4.26% for an entire year, the return would be $426 before taxes.

If Bitcoin ended the year at the same price it was bought for, its holder would have no trading loss, but they would have missed that hypothetical alternative return. So even though cash buyers don’t get an interest bill, choosing a non-yielding asset has an economic cost when other investments offer income.

Now consider another investor with the same $10,000 who borrows an additional $10,000 at a hypothetical 8% annual rate and buys $20,000 of Bitcoin.

The investor has doubled the exposure and also accepted an $800 annual interest obligation. If Bitcoin ends the year at the same price, selling the position and repaying the $10,000 loan plus $800 interest leaves him with $9,200.

The first investor breaks even before fees, and the second loses 8% of their own capital without Bitcoin falling at all.

That difference becomes easier to see across several possible outcomes:

Hypothetical one-year outcomes. Both investors start with $10,000 of their own money. The borrower pays 8% interest on a $10,000 loan. Figures exclude taxes, fees, and any early liquidation.

The leveraged investor needs Bitcoin to jump 4% just to cover the $800 interest bill. Matching the cash investor’s illustrative $426 alternative return would require a 6.13% Bitcoin gain.

At a 10% price increase, leverage helps the borrower earn more than the cash buyer. But at a 10% decline, it makes the loss substantially worse.

And the table assumes something real markets don’t always allow: that the borrower gets to hold the position for a full year.

If Bitcoin falls sharply along the way, a lender can demand additional collateral or liquidate a position before the eventual recovery arrives. Investors may be right about where Bitcoin finishes and still be unable to remain invested long enough to benefit.

Futures can hide the cost in the entry price

Bitcoin futures can easily obscure leverage, making the financing charge less obvious.

Dated futures contracts let traders take on Bitcoin exposure at a price agreed today for settlement later. That price can be above the current spot price, creating what traders call the futures basis.

Suppose Bitcoin trades for $80,000 in the spot market while a contract settling in 90 days trades for $81,200.

The $1,200 premium equals 1.5% of the spot price, or about 6.08% annualized. If Bitcoin’s spot price is still $80,000 at settlement, the long futures position loses $1,200 per Bitcoin of exposure as the contract converges toward the underlying price.

The trader never had to take out a loan to experience that difference, because the premium was embedded in the entry price.

This is where we start to see the connection to interest rates. Traders who buy spot Bitcoin and sell a more expensive future may need to borrow to fund the spot purchase, so inflation, which affects the cost of dollar financing, can influence that premium.

Future prices also reflect the demand for leveraged exposure, and show the capital available for arbitrage. They also reflect the trading constraints investors face when dealing with derivatives.

Spot and futures observations need to be matched in time before their difference means anything. A premium calculated from unrelated price snapshots can easily describe a trade nobody could execute.

Unlike dated contracts, perpetual futures have no scheduled expiry, and exchanges use funding payments to keep their prices near a reference market.

Under Deribit’s published rules, positive funding means long positions pay short positions, while negative funding means shorts pay longs.

That makes funding different from a fixed borrowing rate. It can rise, fall, or change direction depending on how traders are positioned. Government borrowing costs can remain high while perpetual funding turns negative during a market sell-off.

Neither a Treasury yield nor an annualized funding quote tells an investor the full cost of a derivatives position by itself.

Collateral can earn interest, depending on the venue and how the account is funded. Margin requirements can change, trading fees matter, and funding payments must be measured over the actual holding period.

A careful calculation also avoids charging the same financing expense twice. The price difference built into a dated future and the separate cost of borrowing to fund collateral are not automatically two complete versions of the same loan bill.

An inflation hedge isn’t the same as an inflation adjustment

Bitcoin’s long-term scarcity case is often presented as protection against currencies losing purchasing power. Its supply is capped at 21 million coins, and investors such as Michael Saylor have helped make that argument central to corporate Bitcoin ownership.

But the supply cap doesn’t mean its price rises when CPI increases.

Inflation measures changes in the prices people have already paid for goods and services, while Bitcoin’s return depends on what future buyers are willing to pay. Those are different processes, even if investors believe the former will eventually strengthen demand for the latter.

Treasury Inflation-Protected Securities (TIPS) adjust their principal with changes in the relevant inflation index, and the security’s terms include the inflation adjustment.

The ten-year inflation-indexed Treasury had a constant-maturity yield of 2.88% on Oct. 13. That’s a useful benchmark, though an investor selling a TIPS early can still lose money if market yields rise and the security’s price falls.

Investors can compare several assets with different income streams, inflation exposures, liquidity needs, and market risks.

A Bitcoin holder is not necessarily wrong about the eventual effect of inflation, but future appreciation must be large enough to justify what holding the position costs along the way.

The appeal of Bitcoin’s limited supply doesn’t depend on a single monthly inflation report, nor can one strong CPI reading prove that Bitcoin will outperform cash, bonds, or other assets over the next several years.

Higher borrowing costs change how long some investors can afford to wait for that outcome.

Cash buyers can hold through a disappointing year, accepting the income forgone elsewhere. Borrowers must find the interest money and maintain enough collateral to avoid being closed out, while futures traders must manage the contract’s premium, funding, margin requirements, and eventual exit.

All of them can see the same future for Bitcoin but end up with very different results.

Bitcoin might recover from an ugly decline and finish above the original purchase price, yet the leveraged investor who was liquidated during the fall will see none of that recovery.

Inflation can strengthen the case for owning Bitcoin, but expensive financing can shorten the time available to prove that case right.

The upsized offering is expected to raise $630 million before expenses, with settlement scheduled for Oct. 20. Strive will use the proceeds to acquire Bitcoin, support its business, buy income-generating assets, or repurchase other shares.

The eye-popping yield makes the product easy to advertise and sell. However, it doesn’t tell us what an investor bought for $90, or what that investment would be worth if they needed their money back.

A $100 claim is not a $100 exit

SATS is preferred stock, which means its owners are in a different position from shareholders who buy Strive’s ordinary stock.

Common shareholders receive whatever value remains after the company satisfies its liabilities and more senior claims. Preferred holders receive contractual payment rights and a higher place in the repayment order, but their upside is generally more limited.

Strive’s prospectus sets an initial liquidation preference of $100 per SATS share, subject to adjustments that can’t reduce it below $100.

That preference determines the claim investors can assert under the relevant liquidation provisions, and it doesn’t mean a holder can demand $100 whenever they want to sell.

The market price depends on what another buyer is willing to pay for the dividend stream and its associated risk. That’s the most important difference by far, particularly because SATS is perpetual. There’s no maturity date when the company must return the investor’s original purchase price.

So, a share bought at $90 could trade at $100 or more if buyers get comfortable with the company’s finances and accept a lower yield. It could also fall to $75, even if Strive continues making every scheduled payment.

The calculation is straightforward:

Illustrative yields calculated from the $15 annual dividend. Market prices other than the $90 offering price are hypothetical. Cash yield excludes price changes, fees, and taxes.

Someone who pays $90, collects $15 over a year, and sells for $75 receives $90 in total before costs. If every dividend were paid on time, the investor would still have made nothing.

If the resale price falls further, the payments might not even cover the capital loss. If it increases, the buyer can earn more than the advertised income. That’s why the advertised 15% is just a contractual dividend rate.

Strive’s preferred shareholders still stand in line

The word preferred might sound like a promise of safety, but its value depends on who stands above and below the investor in practice.

SATS ranks ahead of Strive’s common shares for dividends and liquidation distributions, but behind all of its existing SATA preferred stock. Debt and certain obligations at subsidiaries also take priority, while the company retains the ability to issue additional securities with equal or higher ranking.

Consider a simplified company with $200 available after other liabilities, $100 owed to senior preferred shareholders, and $50 owed to junior preferred holders. The remaining $50 belongs to common shareholders, so a $40 decline in available assets would hit common shareholders first.

Another $30 decline would wipe out the remaining common value and leave the junior preferred holders $20 short, but the senior preferred claim would still be covered.

That’s the protection junior preferred owners are buying: common equity can absorb some losses before they do. But that protection thins as senior claims grow or the company’s asset value falls. For Bitcoin treasury companies, both can happen at once.

Strive can raise money by issuing more securities and use the proceeds to buy additional Bitcoin. That way, its holdings rise, but so do the financial claims attached to the business. A growing Bitcoin balance doesn’t automatically mean every shareholder’s position has improved equally.

Strive’s October Bitcoin purchases lifted gross Bitcoin per effective common share by just 1.72%, despite a much larger increase in its total holdings.

SATS buyers are exposed to the same basic tension: the company can grow while the protection underneath an individual claim changes.

There are additional rights in the SATS terms, including a holder repurchase right following a defined fundamental change, generally at the $100 stated amount plus accumulated unpaid dividends. Strive also has limited redemption rights under specified conditions.

These provisions aren’t substitutes for an everyday right to sell at $100. In normal trading, the exit price is whatever the market provides.

Daily dividends still need a source of cash

SATS dividends are scheduled to begin on Nov. 9 and be payable every business day.

At seven million shares, the $15 rate implies $105 million in annual SATS dividends. Strive intends to establish a reserve of $22.50 per share at closing, or $157.5 million total, representing 18 months of scheduled dividends.

The reserve will provide an initial payment buffer, but it won’t turn Bitcoin into an interest-paying asset or establish that the company can fund the same payments indefinitely. Strive’s prospectus anticipates using further capital raising as a primary source of dividend funding beyond the initial reserve period.

Income promises accumulate even though the underlying asset doesn’t produce a cash return.

SATS buyers are essentially relying on Strive to maintain enough liquidity to make payments, enough asset value to support their claim, and enough market confidence to preserve a reasonable resale price.

Strive isn’t the only company using preferred securities to finance corporate Bitcoin exposure, since Strategy has also built a substantial preferred-share business of its own. Keeping these securities attractive can become an ongoing capital-allocation task.

Preferred dividends can be funded in a lot of different ways, including through cash reserves, new financing, investment income, or asset sales. Each choice significantly changes the company’s position: issuing more claims creates future obligations, while selling assets reduces holdings the business might otherwise retain.

Bitcoin appreciation can increase the balance sheet’s value. But that appreciation can’t turn into cash in the corporate bank account until a transaction converts it into spendable funds.

A perpetual preferred share from a Bitcoin treasury company is a legitimate investment, since some investors prefer a defined income claim over common equity.

The offering’s $90 price is the most important aspect covered here, because it puts a real cost on that choice. It means that investors are demanding the equivalent of 16.7% a year if payments continue in full.

That unusually high indicated cash yield shouldn’t be mistaken for free income, though. That’s the compensation investors are offered for risks related to payment capacity, claim priority, duration, and resale value.

That’s why the most important comparison we can make here isn’t between SATS and Bitcoin, but between the dollars a buyer pays today, the dollars Strive can distribute over time, and the dollars another investor will eventually pay to take over that claim.

While Bitcoin drives appreciation in Strive’s underlying business, the company itself delivers the dividend promise. The market now decides what that promise is worth.