Oh... so this is actually already a thing?
I honestly thought I might have coined this term myself yesterday because I've never heard of it before, but apparently the internet and finance bros are quite well aware. No ideas are original I tell ya! It's all been done before.
Back to reality!
So people have been talking about dividends and yield quite a bit lately here in crypto land. I'm not quite sure why it keeps popping up at greater frequencies, but I have a few guesses.
The first core reason is that legacy finance is always troubled by the fact that the value of crypto can't be measured by the same metrics as a stock or real estate. These networks don't have "income" or "quarterly reports". You can't rent them out like a house either. The value of crypto is simply more abstract than other assets they are used to.
Because they do not understand the value (or just the properties of money in general) they tend to default to "it has no value". This is nothing new, as it's classic deflection and projection; proud people acting like they have nothing left to learn even if the topic at hand is completely foreign to them.
But none of that explains the recent activity we are seeing with regard to this trend of demanding dividends. In many ways it's old news and rhetoric that's already been spewed eight ways from Sunday at this point. Looking at more current events we see that MSTR launched a product called MSTY last year. The "Y" in this case unsurprisingly stands for "yield".
Michael Saylor loves to pretend he's earning a yield.
Saylor has a habit of buying Bitcoin through his company every Monday, and the tweets go a little something like this:
https://x.com/saylor/status/1916825375155380688
$MSTR has acquired [x] BTC for [$Y] at [$Z average]
and has achieved a BTC yield of [blah blah blah].
What the hell is a BTC yield?
Short answer? There's no such thing; it's a metric he made up so that he could make the strategy sound better to other corporate people that simply don't understand what he's doing or how Bitcoin operates.
https://x.com/edict3d/status/1887172943366455300
I had to use an advanced search to find this.
If I'm being honest I forgot what Saylor exactly means by "BTC yield", probably because it's a dumb nonsensical metric. But it's fairly simple. It's basically the ratio between the company's stock market cap vs the amount of Bitcoin they hold. If that ratio goes up he pretends as though he's earned a yield on the investment.
This is kind of funny to me because if other people used this metric they'd have a "yield" of infinity percent on their first purchase. Basically a divide by zero error. They increased their Bitcoin holdings by a factor of infinity because the original amount was zero and you need to multiply zero by infinity to get how much they currently have. Again, it's a dumb metric used to try and explain what's going on to people who don't have a clue about Bitcoin or why it has value. Yield is something finance bros universally understand, so pushing this somewhat devious narrative makes sense.
So is that why people have been talking about yield in crypto so much?
Honestly I have no idea. Yield was a big talking point in DEFI 2020 as well when all the DEFI tokens were engaged in hyperinflationary Ponzinomics as well. Ah, I do miss the days of earning 2000% APR. Fun times. Yield is just one of those psychological financial instruments that tricks people into thinking they are earning "free money" because it separates the value into two distinct pools, and one of those pools always gets bigger no matter what (the one that's giving dividends). It's easy to see how this could trick people into thinking that assets that offer these dividends are superior... but they clearly aren't, which is why this fallacy exists.
"Risk Free"
As we all understand by now: there is no such thing as risk-free in crypto. When people say risk-free you just turn around and walk the other way unless you want to day-trade the scam on purpose (which is often a valid strategy a shocking amount of time).
So what is MSTY?
Gonna be honest I've never actually looked it up before.
Here's what Google says:
The YieldMax™ MSTR Option Income Strategy ETF (MSTY) is an actively managed fund that seeks to generate monthly income by selling/writing call options on MSTR. MSTY pursues a strategy that aims to harvest compelling yields, while retaining capped participation in the price gains of MSTR.
Hm! Interesting.
I can see why degenerates would be interested in such an instrument. If we think of MSTR as a kind of derivative of Bitcoin (it's not but many people think like this) then we could think of MSTY as a derivative of MSTR... so a derivative of a derivative. It should go without saying that once you start nesting derivatives like this the assets can get very risky (that's how the housing collapse happened in 2008 under "subprime loan" strategy and "mortgage-backed securities").
But I did learn something just now!
It's the reason why so many Bitcoiners are warning about MSTY and pointing out how degenerate it really is. It looks as though it's just a derivative that bets on number go up, but is it really? Luckily I found a Reddit post that explains it much better than I ever would.
https://www.reddit.com/r/dividends/comments/1iiewvh/can_someone_explain_yieldmax_etfs_like_im_5/
Bottom line:
MSTY trades long term gains for short-term income... which is actually kind of the entire theme of dividend fallacy. If an asset is paying out a dividend that money could have been used in other ways that further pump the asset in value rather than paying out a separate thing to investors. But people still love dividends because then they get to pretend like they're earning magical passive income that just comes from nowhere. Anyone in crypto for a while should know by now that the yield comes from somewhere, because round these parts that "somewhere" is often the suckers buying into an unsustainable scam offering high yields.
If you want Bitcoin yield: then take it.
Here's a simple solution for anyone who wants Bitcoin dividends but they are storing the coins in cold-storage or a hardware-wallet. Just sell 10% of your corn every year. That's a 10% dividend. Easy.
But won't I run out of money in 10 years?
No. Because you're selling 10% of what you have in the moment, not 10% of what you had the year before. If you sell 10% you're left with 90%, but if you sell 10% again you're left with 81%, then 72.9%, then 65.61%. After 10 years you'll still have 34.9% of your Bitcoin left. After 20 years you'll still have just over 12% (0.9^20), so you'll never run out. Ever.
Now, do you think that the price of Bitcoin will go up on average more than 10% a year? What about after 20 years? Do you think Bitcoin will be at least x10 higher in 20 years? We'd hope so if we only had 12% of the bag leftover after all that selling.
History says it will go up a lot more than that. So these yearly "dividends" you're taking will go up in value over time. Meaning if you had 1 BTC today you might be able to sell $10k while the price is around $100k for the year, but that $10k could be $20k the year after that even though you're selling a little less corn than the year before. This is a strategy that's going to outperform 99.9% of any asset offering a "real" dividend over the long term.
What about tax events?
Some people wouldn't want to create a tax event like that selling 10% of their corn every year, but guess what? Dividends are an automatic tax event, so that's annoying... and I'm pretty sure they are taxed as like... income or short-term capital gains. That's a way higher number than long-term capital gains you'd get with Bitcoin (which can drop all the way to 0% at the lowest tax bracket). It looks like there is a thing called "qualified dividends" that get taxed on the long-term cap-gains but I assume that doesn't happen very often. A lot of people who swear by dividends make sure to keep those assets in their retirement accounts where they aren't taxed.
Conclusion
Dividends can be a useful financial instrument, but they are not somehow intrinsically better than other investment classes. In fact the dividend fallacy shows us that these mechanics have a way of tricking investors into blindly believing the deal they are getting is better than it actually is. Sounds a lot like crypto to be honest.
