As we always stated previously, we believe in diversification, not only in just diversification on different stocks or currencies but also diversification in the different asset classes. Each asset class has its own cycle, when the stock market is good, the forex market might be bad and it can be another round, or both are bad at the same time while some other asset class is doing good.
Today we are going to talk about a very debatable asset class – Crypto and how can you get crypto exposure in a low risk way.
Our view on Crypto is very conflicting. On one side, the decentralization element of Crypto is not what most governments want especially giving up their control over their currencies. On the other side, the development of crypto and its potential is very exciting and looks promising. Some examples are future payment via crypto without requiring a trusted third party to complete possible and digital ownership and access with Web 3.0. With all these points in mind, we are cautious about the volatility of Crypto at the same time we want to have some exposure to it.
Our Crypto Strategy
This is not a get-rich-quick scheme. It actually uses the time to reduce your risk on crypto and over time, you will get some exposure to Crypto. The strategy is to use StableCoin staking to gain high interest and then use the profit from staking to buy higher risk and high potential Crypto like Bitcoin (BTC) and Ethereum (ETH).
What is Stablecoin?
According to Investopedia, Stablecoins are cryptocurrencies that attempt to peg their market value to some external reference such as the U.S dollar. There are many stablecoins in the market now. For instance, USDT (Tether) is the oldest stablecoin that has the largest market cap, USD Coin (USDC) is a digital stablecoin that was pegged to the United States dollar and issued by a consortium called Centre while BUSD is a stablecoin issued by Binance.
Not all stablecoins are really stable. We are sure you have heard about how TerraUSD (UST) and Terra (LUNA) crashed recently, where UST which suppose to be stablecoin crashed from $1 to less than $0.10.
Hence, picking the right stablecoin is the most critical element of this strategy. After detailed research from our team, we pick USD Coin (USDC) as our stable coin for the following reason.
- Managed by a consortium called Centre, which was founded by Circle and includes members from the cryptocurrency exchange Coinbase and Bitcoin mining company Bitmain.
- Second largest market capitalization stablecoin after USDT
- Known as a fully-reserved stablecoin, every digital dollar of USDC on the internet is 100% backed by cash and short-dated U.S. treasuries, so that it’s always redeemable 1:1 for U.S. dollars.
- USDC reserves are held in the custody and management of leading U.S. financial institutions, including BlackRock and BNY Mellon.
- Each month, Grant Thornton LLP, one of America’s largest audit, tax, and advisory firms, provides third-party assurance as to the size and composition of the USDC reserves.
- Their monthly attestation reports are published here.
Why Not USDT?
Tether (USDT) is the largest cap of stablecoin and has the longest history. Why we didn’t pick USDT? Tether is definitely not as transparent as USDC. During the LUNA crash, if you look at the following chart and see how they perform, USDC spiked to almost 1.10 while USDT dropped to 0.94. It is obvious that the market shifts its crypto asset to USDC when the market is panicking. This is also a vote of confidence in USDC.
Although it sounds safe for USDC but no one will know whether it will fall into same situation like LUNA in future. Invest in Crypto is anyhow risky. Only invest with amount that you are comfortable to lose. No one know exactly what will happen in Crypto world in future.
Limitless Trading
Crypto Broker
To use this strategy, you will need a crypto broker, similar to a forex broker when you try to trade forex. We recommend Matrixport. Some reason we recommend Matrixport as follows.
- Launched in 2019 by experienced crypto innovators and Bitmain co-founders Jihan Wu and Ge Yuesheng.
- crypto-financial services provider headquartered in Singapore.
- has over $10 billion in assets under management and averages $5 billion in trading volume, per month.
- USDC staking can get up to 7-10% pear year.
If you register using our link -> Matrixport , we will get some commission and you will get the following benefit.
- Enjoy a 15% annualised interest rate when you enter a 30-day Fixed Income product. You can earn up to 35 USD!
- When you enter the 15% exclusive Fixed Income product and complete your identity verification, you can unlock a 15 USD cash bonus!
- Receive a free 1,288 USDC* Fixed Income and Dual Currency Investment Experience Bonus.
All broker has its broker risk. We can only assess broker based on its available information. Please perform your own research before you invest or trade.
Limitless Trading
Steps to get your low risk crypto exposure
- Register a Matrixport account and perform the KYC to get your account verified.
- Decide an amount that you want to put into stable coin. It shouldn’t be more than 5% of your total asset. This is just a general advice and you need to assess your own circumstances. For this example, assume we plan to put in USD2,000. You can also decide to put like USD100 every month to average down the currencies fluatuation.
- Use Quick Buy in the app to buy in USDC
- Then stake into highest interest tenor. It usually has 30 , 60 and 180 days. Normally 30 days will have highest rate.
- At the end of each tenor, your principle and payout will deposit back to your account. Assuming 7% , the payout will be around USDC2,000×7%/12= USDC 11.67.
- Use this payout to purchase high potential crypto asset like BTC, ETH. You can refer this CoinMarketCap to see the market cap for each crypto.
- Although the amount invested monthly is not high, but over few years time and with the potential of Crypto, it could still become a substantial amount. Furthermore, the monthly buy in high potential Crypto is a good way of dollar cost averaging too.
- It is important to have long term mindset to use this approach and assuming USDC is true stable coin and is safe enough, you actually only using the staking profit + time to buy high risk crypto asset. Hence, this is our low risk way to get some crypto exposure.
Conclusion
No one know what will happen for Crypto and how it will change the way or they will just collapse one day like tulips crash in the past. Our intention is to get some exposure of it with typical trading mindset where we have
- A defined risk, which is our max loss of total amount put into USDC
- A strategy , by buying high potential crypto using staking profit
- A long term mindset, use time to average down the risk
If Crypto really blossoms and realize its potential, you will be glad that you have some exposure on it. If it didn’t, your max loss will be materialized and let’s move on to other potential passive income.
Happy Trading !