Thread by @ObiWanKenoBit

1/Earning interest on your Bitcoin sounds like a great win. You HODL, put your bitcoin to work, earn some extra cash. But wait! @TheRealBlockFi crypto interest account rehypothecates your bitcoin. From their terms of service:

2/*Hypothecation* is use of collateral to secure debt. *Rehypothecation* is reusing that pledged collateral to borrow cash for example.

3/This additional use right allows intermediaries to create liquidity and put the asset to work. A firm trades a long term asset (bitcoin) into to a short term liability (cash).

4/However a rehypothecated asset can be sold/leveraged multiple times and end up on the balance sheet of a chain of intermediaries, inflating the asset value 4X with multiple claims and no backstop.

5/Wall St. and shadow banking entities use rehypothecation to effectively create “paper claims” on pledged assets.

6/Common thinking is that as hard money Bitcoin cannot be subject to and diluted by Wall St. shenanigans. However as we see here lenders and custodians will collateralize bitcoin.

7/According to @CaitlinLong_ bitcoin’s spot price will be suppressed as rehypothecation creates synthetic bitcoin which exceeds the 21M supply limit.

8/It's critical to understand and resist Wall Street’s and traditional banking schemes. Caitlin’s articles are essential reading:

forbes.com/sites/caitlinl…

Fin/You can prevent this by securing ownership of your coins and not lend or custody with agents rehypothecating bitcoin. Practice proof of asset: move your bitcoin, prevent and disrupt collateral chains.