When the price rises the arrangement feels like wealth, with everyone feeling like a genius. However, when the price falls the custodian issues a margin call you cannot meet without selling or topping up your balance with more Bitcoin, at the price the custodian's own desk has just helped establish. This is the 1974 unallocated-account pattern with one improvement, where instead of asking you to surrender gold in exchange for a paper claim, the complex now asks you to surrender Bitcoin in exchange for the “privilege” of going into debt against it. Fractional-reserve banking is fraud because the bank promises redemption to every depositor while lending the same funds to multiple borrowers. The Bitcoin-custody-plus-loan product recreates the fraud at the asset level, with one deposit and one borrower; both you.
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"When the price rises the arrangement feels like wealth, with everyone feeling like a genius. However, when the price falls the custodian issues a margin call you cannot meet without selling or topping up your balance with more Bitcoin, at the price the custodian's own desk has just helped establish. This is the 1974 unallocated-account pattern with one improvement, where instead of asking you to surrender gold in exchange for a paper claim, the complex now asks you to surrender Bitcoin in exchange for the “privilege” of going into debt against it. Fractional-reserve banking is fraud because the bank promises redemption to every depositor while lending the same funds to multiple borrowers. The Bitcoin-custody-plus-loan product recreates the fraud at the asset level, with one deposit and one borrower; both you."
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