Getting your feet wet with Crypto
Let's wrap up cryptocurrencies. I'm probably as done writing about them as you are hearing about them. Like them or not, crypto is here to stay. An important concept I want to leave you with is "stablecoins," a cryptocurrency designed to track another asset. They are like stock index funds - they exist to track something else. The biggest stablecoins by market cap track the US dollar, and they exist to make it both more accessible and less risky to move dollars into the crypto ecosystem and out of it. Moving $1000 in cash into USDT (called US dollar Tether, because it's "tethered" to the USD) will always be worth $1000 in USDT and vice versa, so you aren't subject to the scary ups and downs of other cryptocurrencies like Bitcoin. Stablecoins such as USDT, the #3 cryptocurrency by market cap behind Bitcoin and Ethereum, have been super important to the industry to avoid the volatility problem. Even Janet Yellen, current Secretary of the Treasury and former Chair of the Federal Reserve agrees that stablecoins could improve the US payment system.
Note the 24-hour high and low for Tether are both $1 USD. Hence, it's a "stable" coin.
Since 2020 or so, crypto loans have been a thing. Customers can either use their existing Bitcoin/other crypto assets as collateral to get a loan in a different asset, or they can lend out their Bitcoin/other crypto assets to other regular people for some interest rate of return. Especially with stablecoins becoming so prevalent, this part of the industry has exploded in the past few years. Crypto Interest-bearing accounts enable people to earn a return on their crypto assets, but they are less regulated. Unfortunately, the ugly head of regulation has started cracking down on this activity.
I was planning for this month's newsletter to prominently feature a company called BlockFi, which does these crypto-loans and where a whole bunch of my old PayPal colleagues now work. Let me tell you why: I have a BlockFi account, currently holding about $5000 in Bitcoin and about $1000 in Gemini USD (a stablecoin much like USD Tether). BlockFi pays me annual interest each month to the tune of 4.5% APR for the Bitcoin (paid to me in Bitcoin) and 7.25% APR for the GUSD (paid to me in GUSD). Compared to getting zero return on holding Bitcoin elsewhere and 0.01% return on US dollars in a regular bank savings account, BlockFi's rates are fantastic. However, the SEC stepped in a few months ago and said these interest rates were illegal and needed to better align with traditional interest-bearing accounts. So three months ago, BlockFi was forced to make changes. I could previously add/remove money to my BlockFi holdings whenever I wished. Now, the Bitcoin and GUSD held there will continue earning interest, but until BlockFi and other companies like BlockFi sort things out with regulators, I cannot add any additional assets to earn interest. If I withdraw the assets, I cannot add them back to earn interest. The crypto industry moves fast, and forced changes like BlockFi's are common.
Getting Started with Crypto Wrap Up
Given the regulatory action by the SEC against BlockFi, I can no longer recommend buying a stablecoin and holding it in BlockFi to get paid 7.25% annually as the best place to 'get your feet wet' in crypto. What continues to be the safest and easiest way to jump into crypto as an American is to open a Coinbase account and buy some Bitcoin. Bitcoin is at a great price right now, relatively speaking, and since only 21 million Bitcoins can ever exist, you would be buying a piece of a finite asset. You won't earn interest on the Bitcoin held there, but given Bitcoin's historical price appreciation, it may not matter. If that is too scary for you, Coinbase is a publicly traded stock (COIN) and one of the few profitable crypto companies.
Growth in Bitcoin's acceptance as an actual currency will continue to come from smaller countries. Last year, El Salvador officially added Bitcoin as a national currency to diversify their economy away from the US dollar. Ukraine's government did the same to provide more flexibility with war funding inflows. Last week, the Central African Republic adopted Bitcoin as a legal tender to provide a better currency option than their weak Central African CFA franc. All signs point to this grassroots pattern continuing with smaller countries that are not dominant on the world stage. Adopting Bitcoin or other cryptos - currencies supported by a decentralized global network - are much less risky and more powerful to small countries than depending on the government of a more significant nation to support your trade and financial system.
Looking toward the future, check out this excellent and short keynote address from the Bitcoin 2022 Miami conference by Peter Thiel (PayPal founder):
- The crypto industry is much less regulated than the traditional financial sector; there is no FDIC or SDIC insurance.
- Crypto trades 24/7 and is more volatile and risky than most stocks.
- Do your research! Crypto is the wild west. Understand how secure and insured a platform is, and make sure you understand how it protects your assets.
- There are 0 counterfeit bitcoins in circulation. How many fiat (traditional) currencies can say that?
The market is continuing to get hammered! Now is likely a good time to buy.
- No trades this month.
- Lindsay, Chloe, Antonio, and Garrett are still sitting on the additional $1000 in cash.
Please remember to update the google sheet detail tab when you buy/sell something. I look at the revision history each month so I can include your trade in this newsletter. The summary tab is at the bottom of this email as a picture and the live link to it is here.