Insurance float is the money insurance companies hold between collecting premiums and paying out claims.
Traditionally, this float is invested in safe, low-risk assets like government bonds. NYDIG’s approach turns this idea on its head. It proposes using this capital to support Bitcoin loans, creating a massive new lending market.
NYDIG’s Bitcoin-Backed Loans Bridge Traditional Finance and Crypto
This is a major shift in how insurance capital is deployed. Companies like Berkshire Hathaway hold over $160 billion in float, typically tied up in stable, traditional investments. Using this float for Bitcoin-backed loans could bridge the gap between traditional finance and the world of cryptocurrency in a novel way. The proposal could offer rates between +450 to +950 basis points over the base rate, which is currently around 5%. In simple terms, this would result in total loan rates ranging from 9.5% to 14.5%.
🚨 BREAKING: NYDIG to launch HODL Loans — efficient, low-cost Bitcoin-backed fiat loans designed to empower HODLers.
“Borrow at a low rate, in the right amount, at the right time — keep #Bitcoin off the market and accelerate fiat debasement.” 💥 pic.twitter.com/z7gQxnEfK9
— Swan (@Swan) December 30, 2024
At first glance, these rates might seem high compared to traditional finance. But when you compare them to the rates in crypto lending, which can often hit 15-20%, they are quite competitive. Why the difference? Traditional crypto lenders charge high rates due to the volatility, 24/7 trading, and regulatory hurdles associated with digital assets.
NYDIG Seeks Lower Loan Costs and Bitcoin Stability
NYDIG believes their use of stable, long-term insurance float will lower these costs and reduce the need for borrowers to sell their Bitcoin to cover loans. The idea is that lower loan rates will help preserve Bitcoin’s value by reducing selling pressure, thereby supporting its price in the long run.
NYDIG is about to unlock one of the largest investable pools of capital in the entire financial system—insurance float—and channel it into Bitcoin-backed loans. This is a big deal. pic.twitter.com/DJx6HwqdGl
— Sam Callahan (@samcallah) December 30, 2024
From a risk perspective, NYDIG argues that Bitcoin’s risk profile is more like stocks in the 40-80th percentile of the S&P 500, meaning it’s less volatile than many expect. The 24/7 trading feature of Bitcoin works in favor of risk management compared to traditional margin loans, which are limited to market hours.
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