Ever since Michael Saylor appeared on the scene in 2020 the cryptosphere has been buzzing with strategies for never selling your crypto.
He makes a strong case for bitcoin being the hardest asset in human history, and that if you're fortunate enough to acquire a hard asset you should never sell it. Instead, you borrow against it. Apparently that's what his billionaire buddies do.
My goal for this bull market is to setup a crypto (and or stable coin) fixed income bucket that generates enough income to live on. Could I accomplish my goal without selling? Technically, yes. But should I?
Over the past few months I've discussed the following with many of the most financially savvy people I know. As it tends to go, half of them think this is a terrible idea, and the other half think I'm an idiot for not doing it...
Unlike the traditional finance (TradFi) world, it's freakishly easy to borrow against your crypto. For my first test, I borrowed $100k USDC from the Nexo app on my phone, while lying in bed, in under 10 minutes. It's instant with no human involvement.
I'm paying 5.9% APR, but the rates range from 5.9%-11.9% depending on how many NEXO tokens you hodl.
The next morning I deposited that $100k USDC into yearn.finance's USDC vault which currently yields 24.45%. That means I'm paying 5.9% to earn 24.45%, so technically I'm earning 18.55% APY or $18,550 a year and I never sold any crypto.
There are tons of places in the cryptoverse I can earn yield like this, but that's a topic for another time. For now, I like yearn because it adjusts strategies on the fly to ensure better yield than sticking it in any one protocol.
Borrowing from Nexo is considered CeFi (Centralized Finance) but I could also go the DeFi (Decentralized Finance) route and pay even lower rates by depositing ETH at 3.5% or even WBTC (bitcoin wrapped on Ethereum) 4.5% into MakerDAO to mint DAI. It's slightly more complicated, but there are great tools like defisaver and instadapp that make it pretty easy.
I can even use Nexus Mutual to buy insurance against Nexo, MakerDAO or Yearn for only 2.6%, which leave me earning 15.95% APY fully insured.
There are lots of layers to this, which creates numerous risks, but the primary concern is maintaining a healthy Loan To Value (LTV) ratio. In the example above, Nexo requires a 50% LTV on ETH loans so they loaned me $100k as long as I hodl over $200k of ETH in my Nexo account. If the value of my ETH dips below $200k, Nexo will start liquidating (aka selling) my ETH until a healthy LTV above 50% is reached. MakerDAO does the same, and charges a liquidation penalty on top of it.
As long as the assets I borrow are stable (like USDC and DAI) and the investments I make with the borrowed money are liquid (like yearn) I should be able to maintain a healthy LTV even if crypto prices tank.
My final take, everyone I've asked is probably half right. Successfully selling at the top of this cycle, paying the capital gains and buying back at the bottom would still be more lucrative - although easier said than done. And as long as I maintain a very healthy LTV of 10-25% I can sleep at night without worrying about liquidations. I could also stick ETH in ETH2 to generate ~8% without borrowing a DAIme.
Nothing this complicated should have a simple answer. My plan as it stands is to do all of the above, though I'm still seeking advice from people who have played these games before.
To the moon 🚀 — @GΞR฿Z Founder & Creator @ BitLift
Tweet of the Week #1
Tweet of the Week #2
Elon is hosting SNL tomorrow night. Everyone's wondering if he's going to pump $DOGE. He just tweeted this ... LOL