Editor's note: No matter your situation, you should consider owning some bitcoin...
As I've explained, even skeptical investors should consider making room for an uncorrelated store of value in the current environment. “In an expansionary, monetary environment, you want scarce assets,” said Michael Saylor, MicroStrategy Inc.’s chief executive officer, in an interview on Bloomberg Television. “The scarcest asset in the world is Bitcoin. It’s digital gold.” For most, just 1-2% of their portfolio in an 'asymmetric bet' can lead to outperformance - even compared to the S&P 500. We are seeing large companies, and even staid insurance companies, add this asset class, for exactly that reason.
Of course, this requires your overall portfolio to be properly constructed to manage risk.
Right now, most investors are riding the wave higher in the stock market. But at some point, the tide will turn... And as I've often said, you must prepare before that happens.
So if you're worried about the long-term financial picture, keep reading...and if you want to learn more about how to invest in this new asset class, join our Facebook group...
The next crypto bull market has arrived...
Governments around the world are using unprecedented money-printing to keep their economies afloat. This is eroding faith in government currencies... and pushing people to look for alternatives.
The industry is also attracting an array of new buyers. Over the past few years, some of the biggest names in the world have driven and invested in crypto-related projects... such as credit-card giant Visa (V), social media titan Facebook (FB), and investment bank JPMorgan Chase (JPM). Digital-payments company PayPal (PYPL) even lets users buy and trade cryptos today.
In other words, we're seeing more interest in cryptocurrency than ever before. The industry is crossing the chasm from the early adopters to the early majority. And as we wait for cryptos to become as common as fiat currencies, you could grow your wealth significantly...
You see, cryptos have always been a speculative investment. But they have steadily been moving away from pure speculation... And now, many of them are income-producing assets. Bitcoin, stablecoins, and many other cryptos can create cash flows for you.
So today and tomorrow, I'll show you three ways to let your money work for you. You can use these yield-generating ideas to grow your crypto holdings, no matter what the market does on a day-to-day basis.
Let's get started...
The simplest way to earn yield on your crypto is by lending it out.
In the early days of crypto, that meant connecting directly with a borrower and agreeing on a loan term and rate. Several platforms make it simpler today. You can deposit your crypto and instantly earn yield without having to find or interact with borrowers.
You might be wondering why people borrow crypto in the first place. There are three big drivers for crypto loans...
First, users may want to tap their crypto equity without selling it. That's because when you sell your crypto, you're taxed on the capital gains – just like with a stock.
For example, you could borrow some money against your bitcoin holdings and pay back the loan without selling your bitcoin. You've tapped the "value" of your bitcoin without spending or selling it (and without generating a tax bill on your capital gains).
Second, a borrower might need a specific token for a short period of time. For example, a user could borrow tokens that he needs for an online game, or he might want to hold a token to participate in a governance vote.
Finally, borrowing platforms offer a way to leverage trades. Folks who own Ethereum can borrow against their holdings to buy tokens in another project without selling their Ethereum tokens, for example. Or they can borrow a token they want to bet against, then sell that token with the hopes of buying it back cheaper in the future. This is a popular strategy for hedging and short selling.
In short, crypto loans are growing in popularity. And you can profit... by acting as the lender. Depending on which platforms and cryptos you're working with, you could earn up to 6% annually on your holdings – and sometimes more.
The second way to make income with cryptos is through something we call "staking." To explain it, I'll give you an example using Ethereum...
Ethereum is undergoing one of the crypto industry's biggest changes. It launched with a similar proof-of-work ("PoW") mechanism to bitcoin. (Now, this might sound complicated... But all it means is that the network is secured by powerful computers performing difficult calculations.)
As long as a network can attract enough participants, it's remarkably secure. Bitcoin, for example, is the most powerful computing network in the world.
But PoW comes with significant trade-offs. It requires vast amounts of energy and sophisticated computers, and it's difficult to scale.
PoW works fine for bitcoin. For Ethereum, though, the plan is to convert to a new consensus mechanism called proof of stake ("PoS"). With PoS, the network is secured by users "staking" or locking up their crypto as a pledge that they won't cheat the system. If users try to cheat, they lose their tokens. If they operate honestly, they earn more tokens.
Staking is similar to renting out your house on Airbnb. You still own the house, but you're giving up control over it for a short period of time in exchange for a financial reward.
Staking doesn't require powerful computers... So it's much cheaper and less energy-intensive. It also promises faster, cheaper transactions, and most importantly, better scalability than PoW – all things Ethereum needs for mass adoption.
The transition to PoS has begun... Users can stake Ethereum to earn a yield on it, though that yield won't be accessible until the transition is completed. But essentially, we're witnessing Ethereum morph into an income-producing asset. Over time, that will make it much easier to value... and bolster the case for holding it long term.
There's one more yield-generating idea you should know about...
In today's zero-interest-rate world, decent yields are hard to find. For example, dividend yields on the S&P 500 Index have rarely been above 2% for the past 20 years. And bond yields are at historic lows... The 10-year U.S. Treasury yields barely more than 1% today.
In short, if you're looking for yield today, you have to look beyond traditional assets.
As I explained earlier, investors can deposit their cryptos in a platform to earn yields. But not all investors like holding something as volatile as bitcoin, Ethereum, or the thousands of other cryptos out there.
That's where lending stablecoins comes in... You can convert your U.S. dollars to stablecoins directly on platforms like Crypto.com and begin earning double-digit yields on them without getting exposure to the volatility of cryptos like bitcoin.
Now, it's important to note... there are regulatory, fraud, and operational risks with stablecoins. We don't recommend putting all of your assets into them.
For example, lending platforms could misappropriate or lose their funds. The parent company of Tether, for example, is the subject of multiple lawsuits that have been consolidated into one in New York. Decentralized stablecoins like Maker's DAI have also been undercollateralized at times... In other words, they haven't held safe amounts in reserve.
But by and large, the industry has rapidly upped its game. Stablecoins like USD Coin, Paxos Standard, and the Gemini Dollar have taken regulation-first approaches. Not only do they meet regulations from the state or federal agencies required by their jurisdictions, but they're also externally audited so you know they're holding the reserves they say they do.
The table below shows the maximum yields you can earn on various platforms for stablecoins...
Please note that while interest rates on the Celsius, Crypto.com, and BlockFi platforms are fixed for specific time periods, rates on the other platforms are free-floating – meaning they can change every few seconds based on supply and demand.
The broader market hasn't recognized this amazing opportunity yet. But with shrinking yields in virtually every other major asset class, it will. Until then, stablecoins are a compelling way to grow your wealth. Take advantage of it while you can.
There are three primary ways to earn yield in the crypto industry – by lending cryptos, staking them, or lending stablecoins. Each comes with unique advantages and risks, but they can all generate income for you today.
And if that income comes in the form of more crypto, it could boost your overall returns dramatically...
For example, if you hold 1 bitcoin today and you earn a compounding 8.2% on it over the next four years, you would have nearly 1.4 bitcoin. If bitcoin surges to, say, $100,000 over the next four years, your holdings would be worth $140,000 instead of the $100,000 they would have been worth otherwise. That's a remarkable difference.
When the bull market begins, crypto's userbase will grow by 10 times or more... the industry's entire market cap will explode into the multiple trillions... and many cryptos could soar thousands of percent.
That time is coming. But as I shared today, you can still grow your wealth no matter how the market behaves.
A move is afoot to make cryptos a viable portion of investment portfolios.
Your humble editor has been ahead of the curve in this area, and will continue to do so. But, this hardly means we'll change our philosophy of how we add value. If the majority of the portfolio is in safe, can't-lose value assets, you have a permission slip to take a flyer with a small percentage.
This is a time of great change. We'll see more change in the next three years than in the past ten. Moving out of your comfort zone allows you to grow...and that's a good thing!