The upcoming Bitcoin (BTC) hash power support product can provide 10% to 13% returns and should not be compared to BlockFi or Celsius’ failed products because its returns are from proof of work and not a “Ponzi scheme” , claims the product’s creator is Bitcoin mining company Luxor Technology.
The Oct. 17 issue of “What Bitcoin Did” highlights the legitimacy of Luxor’s computing power support products podcast. Host Peter McCormack expressed concerns about Luxor’s upcoming product and discussed what the worst-case scenario for Luxor’s product would look like.
Luxor’s head of derivatives, Matt Williams, told Cointelegraph that its hashrate-powered product is not a duplicate of BlockFi or Celsius products because it is backed by economic production.
“There’s actual proof of work and provable economic activity happening,” Williams said. “The returns come from miners handing over a portion of the profits generated by their mining operations to the investors who fund their operations.”
“The main takeaway is this: returns come from computing power, not from fairy dust, Ponzi schemes or re-hypothecation.”
Luxor’s product works through investors providing Bitcoin as collateral to Luxor to receive a portion of the loan repayments, which Luxor then lends to other miners to fund their operations.
Returns accrue when hash power is purchased from Bitcoin miners at a discount and “locked in” hash power when sold at a higher price. Bitcoins in the form of mining rewards come from this computing power. Luxor expects investor returns to be between 10% and 13%.
This process will be managed through Luxor’s upcoming hash rate marketplace.
Williams claimed that the issuance means miners have “better” access to capital since they do not have to sell mined Bitcoins to fund their operations.
“This may be a more economically viable option for miners as they can obtain funds up front while retaining ownership of the Bitcoins they mine,” he added.
Luxor emphasized that it does not use its own mining pool and only acts as a middleman between investors and mining companies. “When we move funds from the buy side (investors) to the sell side (mining companies), we only hold Bitcoin in custody for a short period of time,” Williams said.
We understand your concerns about remortgaging, but to clarify again, there is no remortgage in this product. Earnings come from mining rewards as described in the podcast.
We are happy to have a conversation on this topic to answer your questions and resolve your issues…
— Luxor Technology ⛏️ (@LuxorTechnology) October 27, 2023
But Joe Kelly, CEO of Bitcoin lending company Unchained, said people interested in earning returns from Bitcoin should proceed with caution.
related: Volcano Energy partners with Luxor, El Salvador to launch first Bitcoin mining pool
“Any investment or loan that requires Bitcoin holders to partially control Bitcoin should be subject to rigorous investigation and scrutiny,” he said.
“The Bitcoin lending market is still in its infancy, and unless investors are extremely cautious overall, we are likely to see a repeat of the failures of BlockFi and Celsius.”
Williams emphasized that not everyone can use computing-powered products, only those who have passed the company’s due diligence can use them.
all in all: @luxortech Intends to loan customers’ Bitcoins to reputable mining companies seeking funding.
Luxor will conduct “due diligence” on loan recipients and donors will begin receiving immediately #bitcoin According to a predetermined ratio (i.e. 10-13%)
— ₿itcoin Therapist (@TheBTCTherapist) October 27, 2023
Williams acknowledged that Luxor’s hash-powered products rightfully come with “inherent fear” given the bankruptcies of BlockFi and Celsius, noting that investors are taking Luxor’s counterparty risk.
To mitigate these risks, Luxor said it will only work with “reputable miners” and may even require them to carry insurance.
Luxor did not reveal when the product will be available.
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