Bienvenidos mis ositos, tu siempre eres mis queridos! (Welcome back little bears you are always my dears!)
It’s been a bumpy year for crypto investors hasn’t it?
The FOMO, the FUD, it’s enough to give anyone gray hairs on their head!
Fear not, for the diligent and smart investor a big payoff should be coming soon.
Keep in mind, this isn’t gambling advice, life advice or anything like that. Please feel free to do whatever you want with your life. What I’m about to reveal is just my opinion and my plans.
This is all subject to change of course but here’s what I think will go down.
By now the big institutions (some TradFi and Defi) have accumulated monster sized positions in their portfolios. They are going to move the crypto markets in a volatile fashion. On bad news (which some of them created!) they will quietly accumulate. On a good news (which some of them created!) will look to dump on the unsuspecting public.
You have a few choices.
A lot of people choose to “diamond hand” it or HODL (hold on for dear life).
Others will try to join the whales.
That’s harder than it looks, when you see a bunch of big red candles and your portfolio is cut in half (or more) you might be too scared to act. Even worse some of the weak hands sell at the wrong time and wind up with huge capital losses.
Around late December or early January I expect a top for most coins.
However this is just my guess. The market doesn’t care what I think and will do whatever it wants. That doesn’t mean money can’t be made. You can always adjust your plans as the facts change.
Let’s assume that PlanB’s stock to flow model (S2F) for Bitcoin is correct.
What can be done with your crypto portfolio?
You could just cash out a part or all of your position to meet your living expenses.
Depending on how and when you originally bought, you could face a high tax bill. Of course I have no idea where you live so you may want to confirm with a local tax professional.
One could also take out a loan to sidestep any capital gain tax transactions.
Then the investor could take the loan proceeds to live off of and/or buy another yield bearing asset. Ideally the new yield bearing asset generates enough interest to match the crypto loan interest. The investor also needs to closely watch their loan to value.
If the original collateral falls in value enough that could trigger a liquidation, which would in turn would trigger a capital gain or loss. That would defeat the purpose of taking out a loan in the first place!
Unfortunately most of the crypto loan companies are centralized. This could be a problem if you live in a location that is hostile to crypto. For example New York is a surprisingly horrible place for crypto. Then again maybe it shouldn’t so surprising as many large banks and Wall Street firms are there…
There are some good decentralized borrowing and lending platforms like Aave and Maker on Ethereum. Other blockchains have similar projects and it will be interesting to see the DeFi ecosystems develop.
So let’s say WAMI (We All Made It) and all of us hit at least $1,000,000 in our crypto portfolio. After we high five each other now what? Most borrow platforms require crypto loan to be overcollateralized.
So that means on a $1,000,000 you might be able to get a loan for $500,000 if the protocol has a maximum loan to value ratio of 50%
Obviously you are welcome to take out less to reduce the risk of getting liquidated.
For example, you see a rental property for $400,000 and estimate that you could net a 7% yield after expenses.
The next step would be to find a crypto loan with the most favorable rate. Ideally you will be able to borrow at a fixed rate that’s lower than the yield of the rental property.
In addition you may be able to find another platform that pays a good interest rate that you can deposit into. Earn interest on any unused balances. This way you may be able to offset any interest paid out with interest received.
There’s also more liquid staking options available. So in theory you can stake your original crypto for some yield. Then a liquid staking operator will give you a liquid staking token that you can use as collateral for additional yield farming opportunities.
There will be headaches along the way. In real life you will probably encounter the following:
-Deadbeat tenants
-Flash crashes on crypto exchanges
-Timing of funds going back to TradFi (they still take 3-5 business days to settle!)
-Exchange rate hiccups
One way to handle these annoyance is to hold more cash or stable coins as a buffer. It’s never a bad idea to have an emergency reserve as a general practice.
Hope this gives you some ideas for when you become a crypto millionaire.
Be sharp, stay hungry let’s get that money!
