Every Portfolio Should Have An Allocation
It’s a personal view and by no means financial advice but I believe every Crypto Portfolio should have some exposure to stablecoins. This is also quite important when locking in gains as a trader, or even as a long-term investor.
A Great Hedge
Holding stables will see your portfolio increase somewhat more modestly in a bull run but still rather significantly. The same is true for when prices drop. Stablecoin holders are far less affected by the carnage that so often destroys Crypto investors in a bear market. This is the ultimate motivation behind stablecoins, a hedge!
What Is The Best Allocation?
This will differ from person to person, depending on their risk tolerance and investment objective. I personally like to have a minimum of 15% to 30% at all times. I increase this allocation as a bull market begins to mature, to ensure that I am well protected in the event of a sudden crash. A sudden crash is usually the first stage of a bear market
This does not necessarily mean that all flash crashes are the beginning of further downside but rather that when a bear market is initiated, it is often done so by an initial sharp decline.
Simply Holding Stablecoins Is Not Enough
Due to excessively high inflation and monetary printing, holding stablecoins will cost you over the longer term. That is unless you make use of this simple strategy that has the ability to increase your holdings over time.
A Simple Strategic Solution
Many who choose to lend out their stablecoins usually choose to receive their interest in stablecoins as well, which, unfortunately, is the wrong approach. When using BlockFi, users can set their interest to be paid out in any currency. So, I can deposit USDC and earn my interest in BTC as opposed to USDC.
By receiving interest in BTC, or any other altcoin that has growth potential, investors can outperform inflation and monetary expansion. However, by receiving interest in stablecoins, investors begin to lose value over time. The idea here is that as value is being lost in the principal allocation, new value is being created in the interest that is earned and subsequently growing over time.
The same strategy can be utilized by holding USDC in a Celsius account and receiving interest in the CEL token. Investors who chose this approach in 2019 or earlier are now holding more value in their earned interest, compared to their initial lump sum investment. This has been made possible by the tremendous growth seen in CEL over the past two years.
I guess investors can also receive interest in stablecoins and then immediately shift into other altcoins. This approach however does involve management and time. When it comes to lending and earning interest, many prefer the set-and-forget approach. Either way, there are ways to hedge your portfolio with stablecoins and still grow your portfolio over time.
Get creative, as you brainstorm and test different strategies. That’s how you create win/win scenarios and go on to grow your portfolio over time.