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I have an imaginary friend, whose name is Boston Bob. He is a successful periodontist and an avid poker player.

Some things you need to know about him: his name is actually Juan Carlos, and he has been living in San Antonio all his life. Once he boasted to his poker buddies from the Wednesday game that he had travelled to New England exactly four times. Each time it had been Foxwoods Casino, Connecticut.

So they nicknamed him, you know, Boston Bob.

In his younger days he took road trips to Dallas, and even all the way to Vegas, to play poker. Over the last quarter of the century, he prefers to fly.

In the glorious 90’s, the World Series of Poker (WSOP) was hosted in a dinky, but legend-shrouded, Binion’s Casino, located in the equally dinky Downtown Vegas.

Boston Bob used to buy a one-way ticket and gird himself with a hidden pouch loaded with several neat $5,000 bundles. He didn’t like running out of cash in Vegas. And he didn’t know when exactly he would be heading back. His receptionist was ready to reshuffle his patients’ appointments, if the doctor was doing too well in a poker tournament.

After 9/11, Bob’s Vegas routine was shattered. The combination of his New England brown skin and the unfortunate fact that his driver’s license said “Juan Carlos”, in the eyes of TSA made him… I don’t know what. And the one-way tickets didn’t help.

So no more cash between his belly button and belt buckle. He started wiring money into casino accounts. The bank charged him, like,  twenty-five bucks per wire and he could live with that.

But that soon proved to be a hustle. The WSOP was now hosted by Rio, a semi-dinky Off-The-Strip casino. I happen to like Rio, but my friend Bob prefers to stay in Bellagio, where the fountains spray high, the lights are shiny, and the side games juicy. He is not averse to visiting the poker room at Wynn Casino either.

Now having money on account with one casino is little help when he needs money at another. And withdrawing and converting chips took time and  creates way too many tax records.

I’ll pause here to reassure you that Boston Bob is a US Citizen and a law-abiding citizen at that. He reports his poker winnings as meticulously as his business earnings. But he doesn’t like audits. Who does? And multiple wires and cash transfers don’t help poker-playing Juan Carloses of this world to fly under the radar.

So what does my friend need? He needs a simple, safe and easy way to carry liquidity with him on his casino trips.

I sense the excitement rising among the Silicon Valley crypto-geeks, who are all, no doubt, reading this story. Boston Bob needs a bitcoin wallet! A tiny chip fitting in a pendant around his neck, preloaded with ready-to-use bitcoins. If the casinos were to honor them – he could jump around Vegas unencumbered by cash transactions.

But, wait a second! Boston Bob is a periodontist, not a bitcoin speculator. He has seen the coin jump up and down 20% within days. He likes to be well funded for a trip, but usually uses only a fraction of his stash. Is he supposed to buy $50,000 in bitcoins, only to find them worth $40,000 when he comes back after breaking even from poker?

What my friend needs is not to buy bitcoins, but to borrow them!

Remember, he is a doctor living in a cheap city. He has cash in his account and he is happy to pledge it. What’s more, the blockchain will not let him welch, will it now? After the trip, he’ll return the unused bitcoins without taking much exchange risk.

There are two points to this story:

• Casino industry may benefit from incorporating bitcoins into its operation
• There is a market for bitcoin borrowing by people who need the “just in case” liquidity as they travel

And if we can lend bitcoins to Boston Bob, we can lend it to others!

For as long as bitcoins prices don’t go to astronomical levels, the supply is mathematically limited, and more and more crypto-enthusiasts store their currency in digital vaults, there is bound to be a shortage of supply to accommodate the potential transactional flow.

The lending/repo market will allow businesses and individuals to use bitcoins without taking exchange risk, and it will allow the long-term crypto-investors to receive a yield, instead of paying storage costs.

Then we can speak of dollar/bitcoin cross-currency basis swap, bitcoin forwards market, or (if you prefer commodity-speak) bitcoin backwardation.

When we have a deliverable forwards market, bitcoins miners can hedge their future output and have a stable business model.

When we have a non-deliverable forwards market, hedge funds will be able to play with bitcoin derivatives. Don’t you want to see who will go bust first by being SHORT?

Now many, if not most, still think the bitcoins are destined to go the way of beanie babies. It is valid possibility, but I see two others to be likely if the bitcoin usage will expand:

1. The price will rally explosively
2. A liquid lending market will develop, and bitcoins will grind up with positive carry.

Now Boston Bob is asking you the BIg Question:

Who will start the lending business? Or is it there already?

Image by larrykang

I have an imaginary friend, whose name is Boston Bob. He is a successful periodontist and an avid poker player.

Some things you need to know about him: his name is actually Juan Carlos, and he has been living in San Antonio all his life. Once he boasted to his poker buddies from the Wednesday game that he had travelled to New England exactly four times. Each time it had been Foxwoods Casino, Connecticut.

So they nicknamed him, you know, Boston Bob.

In his younger days he took road trips to Dallas, and even all the way to Vegas, to play poker. Over the last quarter of the century, he prefers to fly.

In the glorious 90’s, the World Series of Poker (WSOP) was hosted in a dinky, but legend-shrouded, Binion’s Casino, located in the equally dinky Downtown Vegas.

Boston Bob used to buy a one-way ticket and gird himself with a hidden pouch loaded with several neat $5,000 bundles. He didn’t like running out of cash in Vegas. And he didn’t know when exactly he would be heading back. His receptionist was ready to reshuffle his patients’ appointments, if the doctor was doing too well in a poker tournament.

After 9/11, Bob’s Vegas routine was shattered. The combination of his New England brown skin and the unfortunate fact that his driver’s license said “Juan Carlos”, in the eyes of TSA made him… I don’t know what. And the one-way tickets didn’t help.

So no more cash between his belly button and belt buckle. He started wiring money into casino accounts. The bank charged him, like,  twenty-five bucks per wire and he could live with that.

But that soon proved to be a hustle. The WSOP was now hosted by Rio, a semi-dinky Off-The-Strip casino. I happen to like Rio, but my friend Bob prefers to stay in Bellagio, where the fountains spray high, the lights are shiny, and the side games juicy. He is not averse to visiting the poker room at Wynn Casino either.

Now having money on account with one casino is little help when he needs money at another. And withdrawing and converting chips took time and  creates way too many tax records.

I’ll pause here to reassure you that Boston Bob is a US Citizen and a law-abiding citizen at that. He reports his poker winnings as meticulously as his business earnings. But he doesn’t like audits. Who does? And multiple wires and cash transfers don’t help poker-playing Juan Carloses of this world to fly under the radar.

So what does my friend need? He needs a simple, safe and easy way to carry liquidity with him on his casino trips.

I sense the excitement rising among the Silicon Valley crypto-geeks, who are all, no doubt, reading this story. Boston Bob needs a bitcoin wallet! A tiny chip fitting in a pendant around his neck, preloaded with ready-to-use bitcoins. If the casinos were to honor them – he could jump around Vegas unencumbered by cash transactions.

But, wait a second! Boston Bob is a periodontist, not a bitcoin speculator. He has seen the coin jump up and down 20% within days. He likes to be well funded for a trip, but usually uses only a fraction of his stash. Is he supposed to buy $50,000 in bitcoins, only to find them worth $40,000 when he comes back after breaking even from poker?

What my friend needs is not to buy bitcoins, but to borrow them!

Remember, he is a doctor living in a cheap city. He has cash in his account and he is happy to pledge it. What’s more, the blockchain will not let him welch, will it now? After the trip, he’ll return the unused bitcoins without taking much exchange risk.

There are two points to this story:

• Casino industry may benefit from incorporating bitcoins into its operation
• There is a market for bitcoin borrowing by people who need the “just in case” liquidity as they travel

And if we can lend bitcoins to Boston Bob, we can lend it to others!

For as long as bitcoins prices don’t go to astronomical levels, the supply is mathematically limited, and more and more crypto-enthusiasts store their currency in digital vaults, there is bound to be a shortage of supply to accommodate the potential transactional flow.

The lending/repo market will allow businesses and individuals to use bitcoins without taking exchange risk, and it will allow the long-term crypto-investors to receive a yield, instead of paying storage costs.

Then we can speak of dollar/bitcoin cross-currency basis swap, bitcoin forwards market, or (if you prefer commodity-speak) bitcoin backwardation.

When we have a deliverable forwards market, bitcoins miners can hedge their future output and have a stable business model.

When we have a non-deliverable forwards market, hedge funds will be able to play with bitcoin derivatives. Don’t you want to see who will go bust first by being SHORT?

Now many, if not most, still think the bitcoins are destined to go the way of beanie babies. It is valid possibility, but I see two others to be likely if the bitcoin usage will expand:

1. The price will rally explosively
2. A liquid lending market will develop, and bitcoins will grind up with positive carry.

Now Boston Bob is asking you the BIg Question:

Who will start the lending business? Or is it there already?