The Beauty Of “Real Stablecoins”

Portfolio Construction

I tend to repeat myself sometimes but it’s only because I consider certain approaches and practices absolutely imperative and I want people to “get it”. One of the most important practices that I continue to drive home is the need for a healthy stablecoin allocation. I am not talking about algorithm-based stablecoins like Terra’s UST but rather stables such as USDC and BUSD. Personally, I have always felt the safest around these two options. Constructing your portfolio is in many ways an art form and something that requires thought and planning. Today has been an absolute bloodbath and to be honest, I was avoiding looking at my portfolio. However, when BTC retested 29K, I decided I better take a look. My stablecoin allocation is now approximately 25% and so was feeling very thankful that I have managed to avoid the temptation to utilize this particular holding.

Did You Notice?

One thing that I noticed is how well ETH performed today in comparison to the rest of the market. This can obviously change but at the time of writing, ETH is down 9% for the day and is only down 2% more than Bitcoin over a seven-day period. I currently hold an equal amount of Ethereum as I do stablecoins, which means that these two holdings make up approximately 50% of my portfolio. This has worked out tremendously well for me during this time. Looking at my portfolio in BTC valuation, I have only lost 3% and this is all due to my stablecoin and ETH holdings. Obviously, in dollar terms, I have lost more as BTC has also dropped. However, the BTC value is important. If I can hold alts and offset the loss by holding large holdings in stables then I am happy.

It’s An Insurance

As I have mentioned before, I intend to hold my stables as insurance. In other words, I am never looking to sell them. Celsius is a great choice to hold stablecoins and earn a fairly good interest rate. If you choose to earn your rewards in CEL when the market is low you can actually increase that percentage by selling your CEL tokens in a bull market. What you are in essence doing by utilizing this simple strategy is buying “altcoins” with your interest. So, you are not spending your stablecoins and yet simultaneously growing and accumulating an altcoin holding without using any of your own capital.

BlockFi Has An Added Benefit

Being able to earn all of your interest in BTC is a great perk that comes wrapped up in the BlockFi service package. Users can also choose to earn their interest in ETH if they so choose. This enables you to earn Bitcoin via your stablecoins with little risk. There is always risk involved but the risk is considerably less. DeFi and stablecoins can work but then it’s basically the same as going into the market anyway, which defeats the objective. It’s about preserving value, while simultaneously gaining further value by earning interest in BTC or ETH. This dynamic can be very profitable over time and is able to hedge against inflation.

Don’t Only Consider The Bullish Case

Most investors make their decisions based on how high a certain project can go. They look for projects with great upside. I do this as well but you have to get your allocations correct. You can’t be allocating large percentages of your portfolio to projects with great upside potential because as the saying goes, “high risk, high reward”. Portfolio construction is imperative to success and on a day like today, there is no better example. These things happen and you have no control over them. What you do however have control over is how you structure your portfolio.

See you all soon and remember, “this too shall pass”.

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