Using Cryptocurrency as savings
APY: Annual Percentage Yield,
Hodler:HODL is a term derived from a misspelling of “hold” that refers to buy-and-hold strategies in the context of bitcoin and other cryptocurrencies.
Staking: Staking is the process of actively participating in transaction validation (similar to mining) on a proof-of-stake (PoS) blockchain. On these blockchains, anyone with a minimum-required balance of a specific cryptocurrency can validate transactions and earn Staking rewards.
Your bank’s sexy new 0.5% interest rate (perhaps even negative interest rate), has probably got you here because some friend told you how rich cryptocurrencies made them…but, wait a second, don’t jump in too fast.We will show you the options you have in the new age of finance, before going balls deep investing your hard earned money into something you don’t understand, just yet…
Now you are probably wondering -cryptocurrencies are volatile, “savings” are meant to keep my money safe, not put it at risk of being wiped away. In that case, saving your money with cryptocurrencies may seem contradictory.
However it is not, there are different options for each savvy saver, and YOU can be one of them!
Now why do people save money with cryptocurrencies in the first place? Well, firstly, people who have been saving their money with cryptocurrencies wanted CONTROL of their money, they did not want the difficulties that they face with traditional institutions. Secondly, because saving cryptocurrencies in macroeconomic terms PAYS you.In the current economic condition,where banks are providing most retail customers with either low interest rates or even negative rates,it is almost a no brainer to change your saving strategy.
Savers fall into two baskets.These baskets are based on your risk tolerance. They will influence your saving preferences as explained below.
Risk Tolerance Vs. Risk Avoidance
- Risk Avoider- This saver wants to make a reasonable return but is one who is usually worried about the volatility and risk of investments and usually goes to the safer bets.
- Risk tolerant saver- This saver is willing to take higher risks in order to gain a higher return as a reward.
Depending on whether you are A or B your recommended path to saving with cryptocurrencies will be very different.
If you are more risk avoidant then stay here (B Scroll down)
For the risk weary investor, stablecoins are your best bet. We would recommend depositing your money in an exchange like Binance and then purchasing a STABLECOIN, as these are not subject to heavy price fluctuations. However, it is still important to note that these stablecoins are still a risk as they are not backed by a ruling authority like the traditional fiat currencies such as the dollar, therefore, one should still take risk management and not hold their money in ONE stable coin but instead split their stablecoin holdings into multiple such as:
After purchasing the different stablecoins then you can proceed to weigh your options to earn income. Recommended exchanges where “savings products” are provided are:
You then have different options on the type of savings and the duration. The options usually fall between flexible vs. fixed savings… With flexible staking you can withdraw your money at any time whilst with fixed staking you agree to give the coins away to a locked wallet for a fixed period for example 6 months. Usually, the locked staking provides higher rewards, however, it does not give you flexibility if you need the money at a certain period of time or if something bad happens with the certain currency.
Staking is basically the same as fixed savings but with a proof of stake coin such as Ethereum.
We will shortly go through the Binance Saving process:
- First you go to the DeFi staking of your Binance account and select the asset you want to stake.
- You then choose the amount and the type of staking you want to conduct, then click confirm purchase.
- Note: If you choose locked staking, you have to hold the assets for the stated period or else you lose the interest accumulated
- Once completed you get a confirmation screen stating “subscription success”
- You can then view the status of your subscriptions in the “earning” section of Binance
- Congratulations, you are now a successful cryptocurrency saver!
B. Risk Tolerant
If you are a more risk tolerant saver, then you can conduct your decentralized finance savings with different products, such as purchasing cryptocurrencies and saving them in a similar way to the above method. However, this method comes with the risk of volatility of the coins.
However, if you are a HODLER and have done your analysis on the coins you plan to hold in the long term, and you do believe that they are a good long term macroeconomics investment then it makes sense to hold your coins through a savings service.This is also the best way to increase the value of your holdings in the long term.
Again, the difference is based on flexible and fixed savings protocols; with the fixed savings protocols having a higher return but again you have to consider the risk of trusting the certain entity of holding your coins for that period of time.
Here is a run down of the platforms that provide savings:
The steps to stake are similar to those mentioned in Part A, only that in this case the subscription would be with cryptocurrencies such as Bitcoin or Ethereum and not stablecoins.
If you want to dive in deeper, then you can hold your tokens through a yield farming protocol where you will be rewarded a much higher APY than that of the above options.
We will be releasing a guide on how to Yield Farm in the coming weeks, therefore, keep an eye on the page for updates.
To close off, it is all good gaining power over your money, however, it is also important to see if you are doing your capital justice by “Tracking”! You will never know where you are making or losing money if you are not tracking your transactions. Therefore, it is important to always keep an organized system where you can manage and track your financial activities to see your profits and losses.The simplest way to do this is with the trusted old spreadsheet.
With the use of apps like Blockfolio, one can connect their portfolio no matter the amount of exchanges through the generation of an API. An important security note is that if you do not plan to trade or withdraw with the API, then you should not give any app any DEPOSIT/WITHDRAWAL access through an API as you can lose your coins if it is a fraudulent app. Permissions for the API should be set to “View Only”.
A more detailed guide on how to create an API (more specifically the Binance API) can be found here.
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Any advice or information in this publication is general advice only – it does not take into account your personal circumstances. Please do not trade or invest based solely on this information. By viewing any material or using the information within this publication you understand that this is general education material and you can not hold any person or entity responsible for loss or damages resulting from the content or general advice provided here. Trading cryptocurrency has potential rewards, but also potential risks. You must be aware of the risks and be willing to accept them in order to invest in the markets. Only trade with funds you can afford to lose. This publication is neither a solicitation nor an offer to buy/sell cryptocurrency or other financial assets. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed in any material on this website. The past performance of any trading system or methodology is not necessarily indicative of future results.
Written by Rodrick Chattaika © Crypto University 2021