Perfect For Patient Investors
Investors with a long time horizon are generally able to perform relatively well by investing in Bitcoin and certain altcoins. However, not everyone has the luxury of time, and on top of that, some are investing In order to generate an income. I have always maintained that holding an asset such as Bitcoin should always be a 4 to 5-year plan.
Unless you understand markets and are able to time your entry, you are likely to do yourself an injustice by only choosing to hold your BTC for a year or two. However, this article is more focused on the idea of investing as a means of income, as opposed to capital appreciation. Investments made for the sake of income generation also experience capital appreciation over time by default.
Crypto Is the best investment opportunity in terms of capital appreciation, in my opinion. However, as a vehicle for income generation, it can get rather “hairy” during bearish seasons. This is where the idea of existing investment-grade assets becomes an alternative, especially if they are now in the form, or represented by a digital asset. This is tokenization!
A Crypto Asset That Is Inherently Not A Crypto Asset
Some time back I published an article about Ravencoin that addressed this specific blockchain’s ability to be able to create tokens that represent real-world assets. These can be in the form of collectibles, as well as security tokens. In other words, a token can represent a share in a business or even a piece of real estate.
This enables token holders to be partial owners of alternative and traditional business models via the acquisition of a single token. If investors gain exposure to tokens that represent a real-world business, they are able to share in the profits and growth of the business. This becomes somewhat attractive to the income-focused investor.
Personally, I consider such investments merely from a position of income generation. Yes, there is capital appreciation, but as I have just mentioned, you can’t compare it to the performance of Bitcoin over a 5-year period. This is even more applicable, in terms of a quality altcoin.
The DeFi Sacrifice
During the course of this bear market, we have addressed DeFi a number of times, basically suggesting that realizing income at this stage, is perhaps not the best idea. If a token is down more than 90% it makes little sense to realize that return. It’s a better idea to rather compound those earnings for future income.
That’s where this particular idea operates as a great hedge. Some may argue that 6% to 10% per annum is not really that great. However, the models that are often connected to this income appreciate in value as well. You need to look at it from a relative point of view.
If your DeFi income is approximately 45% and the token is down 94% you would in fact only be realizing 3% in real terms. On top of that, your holdings (business) are also down 94%. This is very important to factor in, and though one still wants to be predominantly exposed to the asset class (Crypto) which is likely to outperform in the long run, it makes sense to hedge your income to some extent.
Diversification and risk management continue to be the most important aspects of investing, regardless of the sector. This has been one of the problems inherent to the Crypto space. Many uneducated participants believe that these are practices reserved for tradFi. Not so!
Most will perhaps now agree after all the carnage in the CeFi sector, which was largely due to a lack of these very principles. However, it was not the case 6 or 7 months ago. We have been hammering these disciplines since the very beginning. Hopefully, it was helpful to some. Have a good one and see you next time!