From HODL to Home: Bitcoin-Backed Loans Meet Mortgages

What's up, everybody? How are you doing? I'm really excited about this panel. I'm really happy to be here on stage with you guys because this is a topic I personally find very interesting, and I also think this is part of the industry that people are most interested in.

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I would like to ask you, Hunter, to start by introducing yourself and telling the audience how Bitcoin found you.

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My name is Hunter Albright. I'm the chief revenue officer at SALT Lending, and Bitcoin found me through education. I'm an adjunct faculty member at the University of Colorado and have a background in systems engineering. I was asked to teach a course on Bitcoin in 2017, and that took me down the rabbit hole ever since.

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Beautiful. C.J., how about you?

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I'm C.J. Konstantinos, founder and CEO of Peoples Reserve. I have a history in accounting and finance, and I made a bad decision. I bought a house in 2019 for 100 Bitcoin. That's over $7 million today, and I couldn't even get $500,000 for my house. So Bitcoin found me and smacked me upside the head.

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Yeah, sometimes we need the pain to learn. My name is Leon Wankum. I'm a real estate developer and an author for Bitcoin Magazine, and my book Digital Real Estate, on how Bitcoin is changing real estate investing and development, is available for pre-order now.

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Guys, I would like to ask you the question: what would you define as pristine collateral? Hunter, we'll start with you, and how does Bitcoin fit into that framework?

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When I think about pristine collateral, it's collateral where you have liquidity in terms of being able to get the value out if you want to sell it, but also collateral that lets you take advantage of the value you've accumulated by sacrificing your investment, your labor, and other investment opportunities.

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When I think about Bitcoin and pristine collateral, Bitcoin is bringing the tools and strategies of the ultra-wealthy to everybody. You don't have to have $50 million and a private banker to accumulate assets, borrow against them, and then figure out how to generate income off the investments. That's the unlock. We now have more sophisticated tools that are opening up more sophisticated strategies for everybody.

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Yes, I like that. That is so well said. There's no reason for me to repeat it. So what I'll go with is what makes it pristine collateral.

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When you look at where the financial system came from, we had gold, and it was good collateral, but we ran into a few problems. Those problems were that it was hard and costly to transport and settle. Then we had treasuries, and that made it very easy. We had T plus two, T plus three, now T plus one, and it's electronic and easy to settle. You don't have to secure it. You don't have to transport it.

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Then we took what we learned through that process and engineered a solution, and that's what humans are best at: engineering. That engineered solution, with Bitcoin becoming pristine collateral, says, I'm going to take the best from gold and the best from cash equivalents and combine them.

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I'm going to take what is hard to transport and secure, and introduce trustlessness and a 10-minute block time. You can send billions of dollars across the world for the cost of pennies with certainty when it's settled on chain.

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At the same time, you look at the Treasury and say, what's the problem with this? It settles quickly. Well, you can expand the supply infinitely. So you have collateral dilution. Bitcoin says, no, we're not going to deal with that. Twenty-one million, and that's it. So we get the best from gold, the best from cash equivalents, and we have our pristine collateral.

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C.J., I want to build on what you said and compare Bitcoin and real estate. If we look at real estate as collateral, the unlock is not just the appreciation, but also the cash flow from the perspective of the underwriter or the lender. So what is the unlock in Bitcoin? What makes Bitcoin fit into that role?

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The holy grail for traditional finance right now is: how do we lower interest rates sustainably? They're all looking at the same equation and saying, there is a lot of risk and lenders are nervous. Rates are being raised. It's all stated. We don't know. We're guessing. A small group of men deciding the price of money is probably not a good idea.

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We look at that equation and ask, how can we rearrange it to fix this? Can we raise interest rates to lower risk so we can write more loans? No, you can't, because then you don't have affordability. Can we lower interest rates to make affordability better? No, you can't, because then we have more risk. So how do we finagle this equation? You can't. You need to change the equation.

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You need to add a new variable, and that variable is Bitcoin as pristine collateral. The holy grail is lowering interest rates. We introduce pristine collateral, which lowers the risk. When you lower the risk, you can lower the rate, because the interest rate, the price of money, is not just the supply of money and the demand for loans. It's the risk. If we address risk, we can fix the problem, and that's the advantage Bitcoin gives us.

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C.J., how do you think it will affect real estate markets? When we look at real estate, it's over a $300 trillion asset class, and the demand stems from its relative scarcity. People use it as a store of value, but people also use it as collateral. Now that Bitcoin comes in and Bitcoin is being mixed into mortgage products, how do you think it will affect the real estate market?

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I think it can solve for affordability. At Peoples Reserve, the lowest interest rate that we can write is 3%. That's SOFR minus. That is the cheapest rate for any cost of capital in the world right now. How is that possible? Because we are dual-collateralizing property title with pristine collateral. When we reduce risk, we can reduce the rate. When we can reduce the rate, we can address affordability.

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I hope the current administration will see the power of that and remove some potential roadblocks so agencies can start holding this paper rather than just private credit.

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Hunter, do you want to make a comment?

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Yeah. I think the flexibility and the innovation happening in the industry is exciting in terms of what it's allowing people to do. At SALT, we are completing a decade worth of lending against Bitcoin. I had the team do a little bit of analysis to say: what have we learned over the last 10 years from lending, especially around homes and homeownership? Four use cases have come out.

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The first one is access. People borrow against their Bitcoin because they need a down payment. They need access to traditional finance when they don't have the cash and don't want to sell their Bitcoin. Other examples are founders, or if you're living in an international country where you don't have a credit score. Borrowing against your Bitcoin can open up that opportunity.

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The second use case has been around advantage. If you need to move quickly, being able to get cash in 24 hours to take a house off the market or secure your dream home is something we've seen a number of customers do.

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The third one is agility. Maybe you need a bridge loan to buy a home before your current home sells, and that flexibility really helps.

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The last one, which I think is consistent with what you guys are talking about generally, is acceleration. How do I use my Bitcoin to accelerate my wealth building in a way that the ultra-wealthy and the elites have been doing for a long time? We see people buying homes with their Bitcoin and investing in other assets to generate income, but also borrowing against homes and then taking out a HELOC to pay off their loan. Now they get a lower cost of capital once they've unlocked ownership of a house.

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I love that point you just made about giving access to liquidity and turning the plebs into the elite. If you're closest to the printer, you've been called the Cantillionaire, right? Well, you guys, the responsible savers of Bitcoin, the holders of pristine collateral, are going to be the new Cantillionaires. You are going to have the ability to access liquidity, and that's what's so exciting about Bitcoin. It's a new frontier. It's a new class that is emerging, not just an asset class, but a new class of people, ideas, and investment strategies.

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I think what's interesting about that, and we were talking about this backstage, is that the innovation is coming from all of you and how you're thinking about combining new tools with traditional tools to get the solution that you want. Going back to the conversation around pristine collateral, it's scarce, it's valuable, it's a store of value. We use it as a means of exchange, but it's also providing people optionality in a way of combining different systems that hasn't been available before.

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I want you to tell them what you told me backstage about what they're doing with digital credit.

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Just like Strategy is taking the volatility out of fixed income instruments, we're building products that take out the volatility of lending. We're building toward no-liquidation products as well. We have technology that will swap Bitcoin into stablecoin at certain points in your loan, and we have a product out called SALT Shield that eliminates liquidation altogether. No margin calls, for a fee-based program. Again, we're trying to expand the options people have to choose from to ensure your Bitcoin stays your Bitcoin.

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I want to throw some inside baseball for the people who came here. We were talking about STRC and the rate you can get on it, and arbitraging what you can get because it's backed by Bitcoin. That's the whole point of it. That's what makes it digital credit. It's fully backed by Bitcoin, and therefore it is a derivative of pristine collateral.

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At Peoples Reserve, something we're working on that is very exciting for us is that we're going to be accepting STRC and SATA as collateral for your Bitcoin mortgage. If you run the numbers on that, you can end up getting paid to live in your house, and that's a very exciting value proposition.

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I think that's the other thing that unlocks for people who are interested in taking more control of their own finances. I often talk about how I feel like we're going through a shift from labor-based income to asset-based income. If you can learn how to make that shift and have your money work for you, like the ultra-wealthy have shown for centuries, then we all can create more financial freedom and flexibility on the back of Bitcoin.

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One hundred percent. Bitcoin working as digital real estate is a great use case. I know SALT has been in the industry for over a decade, and I also know you have vast experience with TradFi. We talked a lot about the benefits Bitcoin has for the borrower. Now I would like to know from the lender side: what are the benefits that Bitcoin as collateral has for the lender?

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I think it goes back to a topic C.J. was talking on. It's really risk management. I come from a background of secured lending against credit cards back in the day, going all the way through different formats of unsecured lending. So I really try to understand how I am going to get paid from a monthly payment as well as a principal repayment.

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Bitcoin changes the game. Being able to have access to collateral, with the markets we have in terms of daily volume and value, really helps us as lenders acquire capital at attractive rates and ensure that we don't have losses on loans for the lenders we get capital from because of the liquidity and strength of the asset.

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How do you envision the emergence of Bitcoin as a global collateral layer? When do you think that will happen, and how do you envision that?

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I think it's happening now. I've traveled the world over the last 12 to 18 months talking to people about how they use Bitcoin and what the use case is. Some of the stats from the U.S. are that the median age of first-time homebuyers now is over 40. Of all new homebuyers in the United States, only one-fifth are first-time buyers.

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It is increasingly difficult for people to figure out how to get into a home. Whether you think about a home as an asset where you want to store wealth, I'm Gen X, and for my generation and my parents' generation, home ownership was financial literacy. That's how you learned about it. That's how you started to build wealth. That opportunity is being pushed out.

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So what do you do in between? I think Bitcoin provides a solution, and that's consistent globally. I think this average age of first-time home ownership being 40 or above is pretty consistent across the world.

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I would say we've done a pretty good job over the last decade of capturing the gold bugs, the hard money guys, the sound money people, the Austrian economics people. Everybody who is in that philosophy is pretty much in the market.

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For me, what I see is a new wave of adoption, and it's based on what you just said: this solves my problem. When the economy is saying, look, I'm going to turn 40 years old by the time I can buy my first home, how am I supposed to have kids? How am I supposed to start a family? No wonder Elon is telling us we don't have a population problem; we have a depopulation problem, because people can't get started.

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A home is the hierarchy of needs. It's the number one thing you need to feel comfortable starting your family and progressing. We take that knowledge and leverage it in our Bitcoin Mortgage Reserve product, where you only need 20% of the purchase price of the home to get the financing.

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The exciting part from the lender's perspective is that in that product, we split a portion of the upside with you. In our self-repaying mortgage, we don't split any of the upside. At the end of the loan, you get 100% of your collateral back. But if you haven't been saving in Bitcoin for a long time and you want to make a quick move, you can get 20% of that price, get your keys today, and it still works for you.

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We call it an equity engine. Instead of your equity being in your home, growing at a very slow rate, probably equal to the rate of inflation, it's now engineered money and becomes an equity engine. At a 15% CAGR, your 30-year mortgage is done in 14 years. At a 30% CAGR, your mortgage is done in eight years.

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That means the monthly payments you're making, you don't have to make those payments anymore. You can increase your quality of life and standard of living with that cash flow. That's a big deal for people in the world who want to live a better life, do more with their family, and have more experiences. No other asset in the world can deliver that.

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I think there's going to be real innovation in this space when you look at the duration of relationships within financial services. Strategy is taking about 20% off the top compared to what they're going to get from their view of holding on to Bitcoin for 10-plus years, compared to what they're paying out on STRC.

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I definitely see more financial products coming, because with Bitcoin, time heals a lot of the volatility and the issues around margin calls and LTVs. Now, with institutional interest in backing loans because of the understanding of how they work, and all credit to Ledn, the publicly rated secured vehicles are interesting. There is a lot of interest in doing more of those more broadly, and that's also helping educate the market in terms of how good the collateral is to ensure that a lender gets paid when participating and trying to make a market.

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I think you'll see that 20% spread Strategy is capturing come down and get shared between the people facilitating that business and the ultimate borrower who wants to figure out how to get that cash. Whether that's a reduction in APR, whether it's being paid out as yield in Bitcoin or dollars, there are going to be some interesting products that come to market.

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It was amazing that they securitized that book and got it graded. We're really excited at Peoples Reserve because we are going to package the self-repaying mortgage and the Bitcoin Mortgage Reserve and issue a private-label Bitcoin mortgage-backed security. We feel very confident that if Ledn could get their thing graded, and they're pioneering and leading the way on a book, then how much better if you've got property title and pristine collateral?

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When you think about the combination of loans, the private market is booming in terms of interest around Bitcoin. When I think about unsecured lending and my history, when somebody needed to make their payment to protect their home, they would make that payment.

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If we can combine those things in terms of the structured products you're offering, loans that are more oriented toward homeownership and down payments, then it's really going to make it attractive for lenders to seek out those providers and give some of that benefit back to the borrowers.

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Maybe we could talk about risk a little bit. We talked about the opportunities, but obviously there's risk. Anybody who parts with his or her Bitcoin must be sure that there is no high liquidation risk in custody. How do you guys handle it, Hunter?

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The first thing I would say is that borrowers traditionally have gotten the short end of the stick on risk, especially in the original Bitcoin-backed lending space. You're being asked to take on the volatility of the asset, the volatility of LTV and managing your loan, and the risk and volatility associated with the loan being denominated in dollars and the asset being denominated in Bitcoin.

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At SALT, we've really worked to take out as much of that risk as possible and work with the borrower on how to manage it. As I mentioned before, we have a product for stabilization. When somebody gets to 91%, a lot higher than a 65% to 80% liquidation point for a lot of issuers, you get swapped into stablecoin. It gives people some breathing room so they don't have to worry as much about LTV risk when managing their loan, especially during stressful times. The market doesn't drop when we want it to drop, so it gives people the opportunity to figure out how they want to manage it.

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Similar to some of the innovations C.J. is bringing to market, SALT Shield takes away margin calls altogether and treats it more like a mortgage. You make your payments, you're good. You are in good standing with your loan, you have protection around it, and we'll resolve it when it comes to the maturity date.

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Our goal for lending is to think about how we can create as many products around Bitcoin as possible that feel like a mortgage, where you're taking the volatility of the market out and allowing time, the length of the relationship, and a commitment together to make that product work and create new opportunities for everybody.

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That's the big thing. I love that because you guys did that with the line of credit, and we dual-collateralized to achieve the same goal. If someone asks, C.J., if Bitcoin goes down, am I going to lose my home? Then don't do it. That's a horrible product. Could you imagine?

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Getting rid of margin calls and liquidation risk is almost a must, because you guys are putting up the pristine collateral. That is the most important asset on your balance sheet. As Bitcoin becomes financialized, that is the most powerful tool you have to build wealth smarter.

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We have to figure out a way to continue creating products, innovate, and be at the tip of the spear of financial engineering so that borrowers aren't eating all of that risk. If the lender's risk is going down because of the pristine collateral, then the borrower's risk should go down through the structure of the product.

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C.J., what do you think is the biggest misconception about Bitcoin-backed loans?

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I think the biggest misconception comes from the traditional world, where they still think Bitcoin can go to zero. C.J., what happens if Bitcoin goes to zero? What happens if an asteroid strikes the planet and we all die? What happens if we go extinct? It's okay to ask that question, but what it really shows is you didn't put in the hours to understand what is happening here.

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Look at what we learned from gold and silver and natural money, and how that value was stored over time. How could one ounce of gold, when a suit was $20, buy a suit, and then today one ounce of gold buys a very fine suit? How did that happen? How did the dollars dilute and the gold hold? It's a characteristic of money, and we're leveraging that characteristic.

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That's where the engineered money component comes in. We're taking the natural laws of economics and empowering the holder of the asset. That's why my position is that Bitcoin is actually the first real money we've ever had, because it's the first form of engineered money: a truly decentralized, trustless store of value and transfer of value mechanism.

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It's a hard pill to swallow, especially for people like myself and you who spent a long time in accounting, finance, and TradFi. But when the light bulb goes off, that's when the real fun starts to take place, because you can really understand that over a long time period, the risk is gone. Then you can share that risk, share the benefits, and create a better world with finance.

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I think it's a mental shift in terms of understanding the models. There are two elements coming from TradFi. First, in unsecured lending, a single bad loan will wipe out, depending on the product, 30 to 50 good customers. So the underwriting is excruciatingly important in terms of how you think about who you lend to and at what rate. That doesn't exist with Bitcoin-backed lending.

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First of all, there are no credit checks, other than jurisdictional requirements. Basically, your Bitcoin is your credit. As a lender, we couldn't be any happier than to be able to back people who have accumulated pristine collateral and provide loans.

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The second one is the understanding of risk and collateralized lending. People think of collateralized lending, whether it's homes or cars or other instruments, as something where you have to go repossess it. We don't have to go repossess anything. The Bitcoin is liquid. We have an automated trading platform that ensures we can swap it into stablecoin when stabilization occurs, protect the borrower, and protect our lenders. We can ensure they get their principal back, and everybody has the time to manage their loans appropriately.

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Great, guys. It's an exciting topic, and I would like you to share some closing remarks. We are close to the end of our time.

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I just want to thank BTC Inc. They've been a great partner of SALT's. It's a pleasure to come and share our insights and thinking about the industry. For all of you, I'd encourage you to stop by the SALT booth. We've got two great offers out for the conference. One is if you're interested in trying out SALT Shield, our no-liquidation product, you can get a 12-month loan at 10.95%. Talk to the team. Also, if you're interested in switching away and trying some different products, we'll beat other lenders' rates by 100 to 150 basis points.

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Thank you, C.J. I know you have some exciting news to share as well.

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Yes, absolutely. I'd also like to start by thanking the conference and thanking every one of you who showed up here, because Bitcoin succeeds because of you. Bitcoin succeeds because of word of mouth. There is no marketing team. There is no marketing budget. It's your conviction in the asset. It's your love and care for your family, friends, and fellow men and women that make Bitcoin do what it does, which is just naturally take over.

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You said it perfectly: it's already happening. Nothing stops this train, baby. We're going all the way. It's because of you and what all of you do.

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I do have some very exciting news, Leon. Thank you for letting me do this. Peoples Reserve is announcing our official go-live date. Building in the United States, being fully regulated, was a battle. But we feel so excited for the people out here who have been responsible savers of Bitcoin and can finally unlock the purchasing power of their Bitcoin without giving up ownership, without missing out on the upside, without liquidation risk and margin calls.

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Buy a house, and you can actually sleep at night because you don't have to babysit the charts. We are going to be launching on July 4 of this year. Our official launch date will be July 4, We the People Day, and we couldn't be more excited to work with you guys. Thank you so much.