Our Crypto Investment strategy (slow and steady investing for the win)

[Eco_eco]

Hi everyone

I thought I'd share our strategy for investing in Crypto as an asset class.

The TLDR is:
A) we are investing for yield, diversification, and an inflation hedge - not capital growth
B) our time horizon is 5+ years
C) we are already FI and so can afford a small risk
D) Crypto is also a hobby as I enjoy learning about new tech.

Investment statement
1. Mainstream adoption of crypto is continuing. It is highly likely that Crypto will disrupt current financial services, proof of ownership, and supply chains, in the same way that retail and communications have been erupted over the past 20 years by other network technologies and services.
2. Crypto technologies allow for value to be retained at the protocol/network layer (as opposed to application layer). For example in the wider internet Google and Amazon (as applications) have captured much of the value, but TCP/IP is essentially free, while in Crypto Ethereum is capturing a lot of the value in at the network layer, as well as its application layer (eg Uniswap).
2. It is not possible to identify which crypto projects will win out over time. Current market leaders are likely to remain dominant, but their position could be taken by a competitor.
3. The crypto market is highly volatile with up to 90% drops, but with an exponential upside. The volatility appears to be linked to the Bitcoin halving cycle. Bitcoin volatility is reducing after each cycle.

Objective:
Generation of $X00,000 in passive gains per annum (2020 dollars) from passive yields from crypto technologies by 2030.

In 2020 mechanisms for generating yield are:
    1. Proof of work mining
    2. Proof of stake mining
    3. Defi lending
    4. Cefi lending

We expect new yield opportunities to emerge in each generational cycle of crypto technology.

Investment approach:

• Limit risk:Investment of up to 10% of our total wealth (total investment of $X00,000 in 2020 dollars) over the 10 year time horizon ($X0,000 a year). No leverage - cash contributed portfolio only.
• Investment selection:
  1. Risk weighted portfolio (annual rebalancing) based on market cap, with heavy loading towards the projects with the widest adoption - currently this is 30% BTC, 20% ethereum and 50% in other projects
  2. In the other projects category - invest no more than 10% of total capital ($X0,000 in any single project)
• Dollar cost average in:The crypto market is subject to market manipulation. Automated investments where possible, contribute through all market situations.

Q1 2021 Market snapshot:

• BTC has continued to be adopted as digital gold and an inflation hedge, price target for this cycle $100,000 to $400,000 USD. Competitors to BTC as digital gold have not survived crypto winter.
• Ethereum has emerged as the current dominant platform for financial services and has a strong first leader advantage. Price target for this cycle $10,000 USD
• Various other layer two solutions are being developed which will take market share from ethereum over time. It is not clear that ETH will hold the equivalent position to BTC in its market position.
• DeFi has matured as an end use case for smart contracts. DefI coins are in a similar position as network projects in 2017.
• NFTs are emerging as an end use case for proof of ownership of digital and physical assets
• Other use cases are still immature but may solidify this cycle: Insurance, supply chain, personal information, payment gateways, digital fiat currencies

Research:
- https://messari.io/ (research reports, tracking of venture fund investments)
- Nuggets news (commentary on emergent ethereum markets)
- https://glassnode.com  - on chain analysis and data

[talltexan]

So did you just throw a switch and move the 10% of your NW over in one move?

[Eco_eco]

No, we moved over about 2% and will build up with new money over time.

[erjkism]

what other products constitute the other 50%?

[Simpli-Fi]

Thanks for the breakdown.  PTF along

[vand]

You say that Google and Amazon capture the value that the internet provides - this is true but they are first and foremost COMPANIES, not applications.  They merely harness the technology available to create the value.
If crypto is to provide real sustainable value then it will be through companies that integrate the technology to provide better goods and services. Merely participating in swapping a digital token from one owner to another does not create any value to mankind.

[MustacheAndaHalf]

Q1 2021 Market snapshot:

• BTC has continued to be adopted as digital gold and an inflation hedge, price target for this cycle $100,000 to $400,000 USD. Competitors to BTC as digital gold have not survived crypto winter.
• Ethereum has emerged as the current dominant platform for financial services and has a strong first leader advantage. Price target for this cycle $10,000 USD
• Various other layer two solutions are being developed which will take market share from ethereum over time. It is not clear that ETH will hold the equivalent position to BTC in its market position.
• DeFi has matured as an end use case for smart contracts. DefI coins are in a similar position as network projects in 2017.
• NFTs are emerging as an end use case for proof of ownership of digital and physical assets
• Other use cases are still immature but may solidify this cycle: Insurance, supply chain, personal information, payment gateways, digital fiat currencies

Your snapshot has zero negative events, showing the bias that went into it.  China has banned it's financial institutions from dealing in cryptocurrency.  China still has the majority of bitcoin mining, so it's a very significant development.  Why wouldn't that make your snapshot?
https://www.reuters.com/technology/chinese-financial-payment-bodies-barred-cryptocurrency-business-2021-05-18/

As to NFTs, they convey no rights.  Someone selling an NFT of a piece of art, still owns that piece of art.  You are trying to hide this behind words like "emerging" and "use case", because nothing has actually happened.

[Eco_eco]

You say that Google and Amazon capture the value that the internet provides - this is true but they are first and foremost COMPANIES, not applications.  They merely harness the technology available to create the value.
If crypto is to provide real sustainable value then it will be through companies that integrate the technology to provide better goods and services. Merely participating in swapping a digital token from one owner to another does not create any value to mankind.

I think that we are just beginning to see how crypto is being commercialized (as happened with http in the 90s). I expect crypto will be a technology used by many companies where it makes sense. Amazon, Google, and Microsoft all have crypto projects underway. I think crypto is about investing in a new tech sector, which unlike previous sectors has the option of buying either a network token, or stocks in companies making use of the tech.
 

Your snapshot has zero negative events, showing the bias that went into it.  China has banned it's financial institutions from dealing in cryptocurrency.  China still has the majority of bitcoin mining, so it's a very significant development.  Why wouldn't that make your snapshot?
https://www.reuters.com/technology/chinese-financial-payment-bodies-barred-cryptocurrency-business-2021-05-18/

That’s a good point. I only write up a summary at the end of each quarter, and Q1 of 2021 was an extremely bullish period for Crypto. April, May and June will be a quarter with a very different tone - what with the 50% drop in values and all. As I mentioned the extreme volatility in crypto is what has led me to a dollar cost average, relatively broad investment approach. To be clear, Q1 2021 was preceded by several years of ‘crypto winter’, a long a prolonged bear market, and it could well have been the market top for 2021.

As to NFTs, they convey no rights.  Someone selling an NFT of a piece of art, still owns that piece of art.  You are trying to hide this behind words like "emerging" and "use case", because nothing has actually happened.

The current craze of NFT ownership of things like digital art is interesting. On one hand a token conveying ‘ownership’ of a jpeg is crazy. However, there is a market for this, and collectors seem to ascribe value to it. It does seem to be an emergent use of the technology.

NFTs could easily disrupt sectors which require proof of ownership. Ticketing for sport events and music festivals is a good example where NFTs are starting to emerge, but it is possible that NFTS could be recognized as legal instruments, in which they could convey ownership rights for almost anything.

what other products constitute the other 50%?

Mainly network layer projects - polkadot, cardano, sol, etc. Also some exchange tokens - Binance, FTX, and then other rats and mice which seemed interesting at the time.

[MustacheAndaHalf]

Your snapshot has zero negative events, showing the bias that went into it.  China has banned it's financial institutions from dealing in cryptocurrency.  China still has the majority of bitcoin mining, so it's a very significant development.  Why wouldn't that make your snapshot?
https://www.reuters.com/technology/chinese-financial-payment-bodies-barred-cryptocurrency-business-2021-05-18/

That’s a good point. I only write up a summary at the end of each quarter, and Q1 of 2021 was an extremely bullish period for Crypto. April, May and June will be a quarter with a very different tone - what with the 50% drop in values and all. As I mentioned the extreme volatility in crypto is what has led me to a dollar cost average, relatively broad investment approach. To be clear, Q1 2021 was preceded by several years of ‘crypto winter’, a long a prolonged bear market, and it could well have been the market top for 2021.

Right, so why wait until June to post about March?

As to the "several years" that preceded "Q1 2021", you're wrong.  In 2020, Bitcoin tripled in price, and it nearly tripled in 2019.  How is tripling every year a "crypto winter"?  Here's proof of what I'm saying - where is your data?
https://finance.yahoo.com/quote/BTC-USD/

As to NFTs, they convey no rights.  Someone selling an NFT of a piece of art, still owns that piece of art.  You are trying to hide this behind words like "emerging" and "use case", because nothing has actually happened.

The current craze of NFT ownership of things like digital art is interesting. On one hand a token conveying ‘ownership’ of a jpeg is crazy. However, there is a market for this, and collectors seem to ascribe value to it. It does seem to be an emergent use of the technology.

NFTs could easily disrupt sectors which require proof of ownership. Ticketing for sport events and music festivals is a good example where NFTs are starting to emerge, but it is possible that NFTS could be recognized as legal instruments, in which they could convey ownership rights for almost anything.

Where is your evidence people are buying NFTs to take ownership of physical things?  The most expensive NFT was for a collage containing several years of artwork by Beeple (who by the way thinks NFTs could be in a bubble).  No ownership of physical artwork was conveyed in that transaction.  What you own is the token itself, which has no use.  Everyone else can share the image freely - the owner of the token of that image can't stop them.

As to tickets, there could be a use case.  Ticketmaster charges a lot using their market power.  If online tickets can be sold without those fees, sporting events have an incentive to do that.  But in my mind, those won't really be "non fungible" - they are a ticket to a sporting event.  It doesn't matter if you get ticket #6 or ticket #56 - they have the same use.  They are fungible non-fungible tokens?

(Edited to fix quoting)

[Simpli-Fi]

  It doesn't matter if you get ticket #6 or ticket #56 - they have the same use.  They are fungible non-fungible tokens?

it does if that is row 6 vs row 56...but maybe you are just talking about getting in the door?

[celerystalks]

This seems like a great way to loose a lot of money.  There is no way to "invest" in crypto.  It's pure speculation.  Good luck!

[MustacheAndaHalf]

  It doesn't matter if you get ticket #6 or ticket #56 - they have the same use.  They are fungible non-fungible tokens?

it does if that is row 6 vs row 56...but maybe you are just talking about getting in the door?

They're only selling one ticket per row?

The topic was about non-fungible tokens used for tickets.  To be "non-fungible" means no two tickets are equivalent.  And yet tickets are charged by section - entire areas of a stadium that are so similar they all have the same price.  So tickets aren't really "non-fungible", and don't require NFTs.

[Simpli-Fi]

  It doesn't matter if you get ticket #6 or ticket #56 - they have the same use.  They are fungible non-fungible tokens?

it does if that is row 6 vs row 56...but maybe you are just talking about getting in the door?

They're only selling one ticket per row?

The topic was about non-fungible tokens used for tickets.  To be "non-fungible" means no two tickets are equivalent.  And yet tickets are charged by section - entire areas of a stadium that are so similar they all have the same price.  So tickets aren't really "non-fungible", and don't require NFTs.

gotcha...thanks for the clarification

[Simpleton]

1. Risk weighted portfolio (annual rebalancing) based on market cap, with heavy loading towards the projects with the widest adoption - currently this is 30% BTC, 20% ethereum and 50% in other projects

Have you considered buying a position in Coinbase? This seems like a diversified bet on every project, and growth of the sector/technology as a whole. It is also less speculation-on-assets and more investment-in-business.

I do concede valuation looks unattractive though absent big growth.

[Eco_eco]

1. Risk weighted portfolio (annual rebalancing) based on market cap, with heavy loading towards the projects with the widest adoption - currently this is 30% BTC, 20% ethereum and 50% in other projects

Have you considered buying a position in Coinbase? This seems like a diversified bet on every project, and growth of the sector/technology as a whole. It is also less speculation-on-assets and more investment-in-business.

I do concede valuation looks unattractive though absent big growth.

This is a good idea for people who want some exposure to Crypto but aren’t comfortable with the technology - buying stocks in companies which are working with blockchain technologies and / or the crypto market.

This has the advantages of being quick and easy and without going through much of the learning curve about what crypto is and how it works. It also avoids all of the risks of self-custody. I assume it is only a matter of tine before someone sets up a crypto index fund of these kinds of stocks.

Personally I prefer to own whichever coins I’m interested in directly as I’m interested in understanding how each project works and I’ve been wary of this risk of these companies failing. However, I have found this to be less and less relevant as the whole crypto sphere matures.

  It doesn't matter if you get ticket #6 or ticket #56 - they have the same use.  They are fungible non-fungible tokens?

it does if that is row 6 vs row 56...but maybe you are just talking about getting in the door?

They're only selling one ticket per row?

The topic was about non-fungible tokens used for tickets.  To be "non-fungible" means no two tickets are equivalent.  And yet tickets are charged by section - entire areas of a stadium that are so similar they all have the same price.  So tickets aren't really "non-fungible", and don't require NFTs.

Companies which are using NFTs for ticketing are using them to make each ticket unique. Essentially each ticket is converted to a token, which is then sold to a ticket owner. This allows the issuer to be able to see the tickets history via the blockchain. This allows the ticket issuer to prevent scalping and to better control the resale of each ticket.

This has the potential to have a massive transformative effect as every ticketing company would like to end scalping.

Edit: fixing up the quotes

[BicycleB]

Ptf.

[effigy98]

Crypto for yield like on blockfi? Probably just better to have .01% CD interest. The fed says inflation is transitory and would do nothing to destroy our savings. The 37 CAPE ratio is probably fine too. Yolo stocks 100%

Sent from my Pixel 3a using Tapatalk

[MustacheAndaHalf]

The topic was about non-fungible tokens used for tickets.  To be "non-fungible" means no two tickets are equivalent.  And yet tickets are charged by section - entire areas of a stadium that are so similar they all have the same price.  So tickets aren't really "non-fungible".

Companies which are using NFTs for ticketing are using them to make each ticket unique. Essentially each ticket is converted to a token, which is then sold to a ticket owner. This allows the issuer to be able to see the tickets history via the blockchain. This allows the ticket issuer to prevent scalping and to better control the resale of each ticket.

This has the potential to have a massive transformative effect as every ticketing company would like to end scalping.

As soon as something cheaper and more efficient than NFTs emerges, tickets will switch to that.  They don't require a blockchain or NFTs.

Also, scalpers buy tickets and then re-sell them for higher prices.  How do NFTs stop that practice?  Are you conflating counterfeiting with scalping, which are two different things?

And if you're wondering why I'm responding, it's because you should have quoted that from me:

They're only selling one ticket per row?

The topic was about non-fungible tokens used for tickets.  To be "non-fungible" means no two tickets are equivalent.  And yet tickets are charged by section - entire areas of a stadium that are so similar they all have the same price.  So tickets aren't really "non-fungible", and don't require NFTs.

[Eco_eco]

The topic was about non-fungible tokens used for tickets.  To be "non-fungible" means no two tickets are equivalent.  And yet tickets are charged by section - entire areas of a stadium that are so similar they all have the same price.  So tickets aren't really "non-fungible".

Companies which are using NFTs for ticketing are using them to make each ticket unique. Essentially each ticket is converted to a token, which is then sold to a ticket owner. This allows the issuer to be able to see the tickets history via the blockchain. This allows the ticket issuer to prevent scalping and to better control the resale of each ticket.

This has the potential to have a massive transformative effect as every ticketing company would like to end scalping.

As soon as something cheaper and more efficient than NFTs emerges, tickets will switch to that.  They don't require a blockchain or NFTs.

Also, scalpers buy tickets and then re-sell them for higher prices.  How do NFTs stop that practice?  Are you conflating counterfeiting with scalping, which are two different things?

And if you're wondering why I'm responding, it's because you should have quoted that from me:

They're only selling one ticket per row?

The topic was about non-fungible tokens used for tickets.  To be "non-fungible" means no two tickets are equivalent.  And yet tickets are charged by section - entire areas of a stadium that are so similar they all have the same price.  So tickets aren't really "non-fungible", and don't require NFTs.

I've fixed up that quote in my post above. Apologies for the over editing.

I was thinking of the benefits that NFTs bring to ticketing being unique and programmable. As a ticket can be set up as a smart contract the ticket issuer is able to do things like build in a perpetual commission into each re-sale of the ticket.

This could effectively eliminate scalping for the ticket seller. I don't mean that tickets won't be re-sold, but if they are an NFT the issuer could set up the smart contract so that they get 100% of the proceeds over and above the face value of the ticket when it is sold to a new holder. This removes the benefit for the scalper and so makes it uneconomic to block buy tickets and scalp them. Someone who wants to sell their ticket and recover the cost can still do so, but any profit goes to the ticket issuer.

Here's some articles that put it better than I do:
https://medium.com/centrality/nfts-are-ready-to-disrupt-the-ticketing-world-5cf13c637912
https://www.ledgerinsights.com/citi-bank-consider-offering-cryptocurrency-services/
https://www.cryptoweather.news/nft-tickets-are-nfts-an-advantage-for-ticketing/

[MustacheAndaHalf]

The topic was about non-fungible tokens used for tickets.  To be "non-fungible" means no two tickets are equivalent.  And yet tickets are charged by section - entire areas of a stadium that are so similar they all have the same price.  So tickets aren't really "non-fungible".

Companies which are using NFTs for ticketing are using them to make each ticket unique. Essentially each ticket is converted to a token, which is then sold to a ticket owner. This allows the issuer to be able to see the tickets history via the blockchain. This allows the ticket issuer to prevent scalping and to better control the resale of each ticket.

This has the potential to have a massive transformative effect as every ticketing company would like to end scalping.

As soon as something cheaper and more efficient than NFTs emerges, tickets will switch to that.  They don't require a blockchain or NFTs.

Also, scalpers buy tickets and then re-sell them for higher prices.  How do NFTs stop that practice?  Are you conflating counterfeiting with scalping, which are two different things?

And if you're wondering why I'm responding, it's because you should have quoted that from me:

They're only selling one ticket per row?

The topic was about non-fungible tokens used for tickets.  To be "non-fungible" means no two tickets are equivalent.  And yet tickets are charged by section - entire areas of a stadium that are so similar they all have the same price.  So tickets aren't really "non-fungible", and don't require NFTs.

I've fixed up that quote in my post above. Apologies for the over editing.

I was thinking of the benefits that NFTs bring to ticketing being unique and programmable. As a ticket can be set up as a smart contract the ticket issuer is able to do things like build in a perpetual commission into each re-sale of the ticket.

This could effectively eliminate scalping for the ticket seller. I don't mean that tickets won't be re-sold, but if they are an NFT the issuer could set up the smart contract so that they get 100% of the proceeds over and above the face value of the ticket when it is sold to a new holder. This removes the benefit for the scalper and so makes it uneconomic to block buy tickets and scalp them. Someone who wants to sell their ticket and recover the cost can still do so, but any profit goes to the ticket issuer.

Here's some articles that put it better than I do:
https://medium.com/centrality/nfts-are-ready-to-disrupt-the-ticketing-world-5cf13c637912
https://www.ledgerinsights.com/citi-bank-consider-offering-cryptocurrency-services/
https://www.cryptoweather.news/nft-tickets-are-nfts-an-advantage-for-ticketing/

One of the problems with crypto and NFTs is the sources of information all tend to be non-mainstream news sources.

I suspect scalpers will get around the rules.  First, I don't know why you assume all money must change hands on the blockchain - a scalper can demand payment outside the transaction.  Or the scalper could sell the account holding the ticket, without transferring the ticket.

Of course, ticketmaster has a huge incentive to stop a huge threat to it's business.  Even if NFT tickets can't solve all problems, they are a big threat to ticketmaster's market share.  That might be an investment angle: invest in ticket NFT companies before ticketmaster realizes it has to buy them out.

[vand]

The idea of digital scarcity is a misnomer, because any such scarcity is artificial.

You can't in one hand talk about the benefits of scalibility in a digital world while at the same time espousing the benefits of digital scarcity. Talk about having your cake and eating it...

[ysette9]

Newbie question for you smart people. How do you get yield out of crypto currencies? Any other currency like dollars or euros or RMB don’t produce anything un of themselves, you have to invest them in something to make any additional money. Why would crypto currencies be different? Where is the value creation as opposed to simply value storage?

[BicycleB]

Newbie question for you smart people. How do you get yield out of crypto currencies? Any other currency like dollars or euros or RMB don’t produce anything un of themselves, you have to invest them in something to make any additional money. Why would crypto currencies be different? Where is the value creation as opposed to simply value storage?

While waiting for the smart people, I'll offer my gut response: There isn't any! There's just a speculative incentive for early adopters.

[Psychstache]

Newbie question for you smart people. How do you get yield out of crypto currencies? Any other currency like dollars or euros or RMB don’t produce anything un of themselves, you have to invest them in something to make any additional money. Why would crypto currencies be different? Where is the value creation as opposed to simply value storage?

The same value creation as in tulip bulbs and beanie babies.

[Telecaster]

Newbie question for you smart people. How do you get yield out of crypto currencies? Any other currency like dollars or euros or RMB don’t produce anything un of themselves, you have to invest them in something to make any additional money. Why would crypto currencies be different? Where is the value creation as opposed to simply value storage?

Well, what the crypto people say is that crypto has  built-in scarcity.  So as crypto becomes more and more widely adopted, the price will continue to lurch upwards.  But there are a couple problems with that line of thinking that I've never good good explanations for.  Namely, if the price the price continues to go up, then no one would ever want to spend it, so there is there is no reason for it to become widely adopted.  So if it doesn't become widely adopted...

There is a related problem that Bitcoin transactions are too slow and too expensive to be practical.  There are third-party solutions, but they add complexity.  In a practical sense, this means that a dozen years after its introduction still almost no one accepts native Bitcoin for payment. 

I think the best way to view Bitcoin is as a collectable.  People own it because they like the idea of owning it. 

[Juan Ponce de León]

Newbie question for you smart people. How do you get yield out of crypto currencies? Any other currency like dollars or euros or RMB don’t produce anything un of themselves, you have to invest them in something to make any additional money. Why would crypto currencies be different? Where is the value creation as opposed to simply value storage?

While waiting for the smart people, I'll offer my gut response: There isn't any! There's just a speculative incentive for early adopters.

Sounds like you know quite a lot about this subject.  Thankyou for the valuable insight.

[ysette9]

Newbie question for you smart people. How do you get yield out of crypto currencies? Any other currency like dollars or euros or RMB don’t produce anything un of themselves, you have to invest them in something to make any additional money. Why would crypto currencies be different? Where is the value creation as opposed to simply value storage?

While waiting for the smart people, I'll offer my gut response: There isn't any! There's just a speculative incentive for early adopters.

Sounds like you know quite a lot about this subject.  Thankyou for the valuable insight.

Can you set the record straight? I’m purposefully trying not to be snarky because I’d like to learn.

[Juan Ponce de León]

Newbie question for you smart people. How do you get yield out of crypto currencies? Any other currency like dollars or euros or RMB don’t produce anything un of themselves, you have to invest them in something to make any additional money. Why would crypto currencies be different? Where is the value creation as opposed to simply value storage?

While waiting for the smart people, I'll offer my gut response: There isn't any! There's just a speculative incentive for early adopters.

Sounds like you know quite a lot about this subject.  Thankyou for the valuable insight.

Can you set the record straight? I’m purposefully trying not to be snarky because I’d like to learn.

On this forum, no I won't bother.  Repeat after me: tulip bulbs, tulip bulbs.

[BicycleB]

In good faith for learning, I have been supposing that cryptocurrencies that offer an explicit yield are somehow distributing a portion of the value that they get through the process of accumulating users/buyers/investors. It's not clear to me that that is sustainable, but possibly I am failing to recognize the true source of value.

On a related note, there's a class of cryptocurrencies that use a linked for-sale-to-investors token as a fundraising source to support the value of another token, a so-called algorithmic stablecoin (?). If the stablecoin needs extra funds to pay out in full its $1 per coin promise, the company just sells more of the investor coin.

I read a few days ago in Money Stuff that a variant (IRON) touted as supersafe unfortunately blew up. I think IRON was the stablecoin, TITAN the investor coin. It worked to a point, but after that point fully collapsed.

https://www.bloomberg.com/news/newsletters/2021-06-17/money-stuff-titanium-got-crushed

Fwiw, the purpose of the stablecoin was to provide decentralized finance, presumably faster and more reliably than BTC. Theoretically could be useful, I would think.

ETA: Re-reading @Eco_eco 's original post, I see that two of his/her original yield strategies was defi (decentralized) lending and cefi (centralized) lending. I think that lending here means issuing more stablecoins than actual dollars received, effectively re-inventing fractional reserve banking under a different name in a so-far-somewhat-unregulated space. Obviously IF it works, could be profitable. Depends on details. I admit that I don't quite follow the interest mechanism exactly, or whatever replaces borrower interest in these models. As stated, awaiting wiser posters' insight.

The other yield strategies OP mentioned were both mining. I suppose that the "yield" there isn't interest like a bond, but rather a description of some process where the investor actually calculates part of the blockchain and sells the resulting coins, presumably at a profit compared to the calculating/mining cost. I guess the gain could either be due to mining efficiency, or price increases if the coin value rises for some reason. Maybe OP will clarify?

[joe189man]

PTF and learn a bit

[talltexan]

In the short term, I feel the yield is a modest consolation for some pretty steep write-downs in Net Asset Value. If you're young, shouldn't capital appreciation be more important than yield?

[theolympians]

Newbie question for you smart people. How do you get yield out of crypto currencies? Any other currency like dollars or euros or RMB don’t produce anything un of themselves, you have to invest them in something to make any additional money. Why would crypto currencies be different? Where is the value creation as opposed to simply value storage?

Well, what the crypto people say is that crypto has  built-in scarcity.  So as crypto becomes more and more widely adopted, the price will continue to lurch upwards.  But there are a couple problems with that line of thinking that I've never good good explanations for.  Namely, if the price the price continues to go up, then no one would ever want to spend it, so there is there is no reason for it to become widely adopted.  So if it doesn't become widely adopted...

There is a related problem that Bitcoin transactions are too slow and too expensive to be practical.  There are third-party solutions, but they add complexity.  In a practical sense, this means that a dozen years after its introduction still almost no one accepts native Bitcoin for payment. 

I think the best way to view Bitcoin is as a collectable.  People own it because they like the idea of owning it.

I hear people talk about cryptos all the time. I have yet to meet anyone in real life who has used crypto, or even know how to if they had the intention of using it.

[joe189man]

Where are you folks setting up your wallets or accounts to buy? Coinbase? or one of these accounts that pays interest like blockfi? or?

[onecoolcat]

Where are you folks setting up your wallets or accounts to buy? Coinbase? or one of these accounts that pays interest like blockfi? or?

I've in it since July 2017 and have only ever bought from Coinbase or Coinbase Pro.  Never leave a significant amount of coins in any wallet you don't control the only copy of the key to.  I do not trust BlockFi.  Once its insured I will consider their services but its too great a risk.

[ice_beard]

Crypto = speculating, not investing.  GL.

[getmoneyeatpizza]

What is PTF?

[BicycleB]

Posting to follow

[onecoolcat]

Crypto = speculating, not investing.  GL.

Investing = speculating.  GL.

[ysette9]

Crypto = speculating, not investing.  GL.

Investing = speculating.  GL.

No, they are different.

Investing is putting money in something that has the capacity to produce value, whether through income streams or appreciation due to business growth, or paying back a loan (bond), etc.

Speculation is buying something in hopes that other people will be willing to pay more for the same thing at some point in the future.

[pnw_guy]

Crypto = speculating, not investing.  GL.

Investing = speculating.  GL.

No, they are different.

Investing is putting money in something that has the capacity to produce value, whether through income streams or appreciation due to business growth, or paying back a loan (bond), etc.

Speculation is buying something in hopes that other people in the future will be willing to pay more for the same thing at some point in the future.

+1

Investments have internal rates of return, like a dividend. IMO crypto is speculation because - like classic cars and baseball cards and gold - the only way to make money is by finding someone to pay more for your holdings than you bought them for.

[Juan Ponce de León]

Crypto = speculating, not investing.  GL.

Investing = speculating.  GL.

No, they are different.

Investing is putting money in something that has the capacity to produce value, whether through income streams or appreciation due to business growth, or paying back a loan (bond), etc.

Speculation is buying something in hopes that other people in the future will be willing to pay more for the same thing at some point in the future.

+1

Investments have internal rates of return, like a dividend. IMO crypto is speculation because - like classic cars and baseball cards and gold - the only way to make money is by finding someone to pay more for your holdings than you bought them for.

It's great we have so many crypto experts on this site to set the record straight.

[pnw_guy]

Crypto = speculating, not investing.  GL.

Investing = speculating.  GL.

No, they are different.

Investing is putting money in something that has the capacity to produce value, whether through income streams or appreciation due to business growth, or paying back a loan (bond), etc.

Speculation is buying something in hopes that other people in the future will be willing to pay more for the same thing at some point in the future.

+1

Investments have internal rates of return, like a dividend. IMO crypto is speculation because - like classic cars and baseball cards and gold - the only way to make money is by finding someone to pay more for your holdings than you bought them for.

It's great we have so many crypto experts on this site to set the record straight.

Anyone that has read Bill Bernstein (and if you haven't, you should) knows that this type of pushback against naysayers is a sign of a bubble:

Bernstein: Well, a year ago, I would have answered that in the negative. I just didn't see any of the usual diagnostic signs that one sees during a bubble, which is people thinking that they're going to be coming effortlessly rich, which they chatter about endlessly whenever you go to a party or you meet people casually on a social basis. We weren't seeing people quitting their jobs to day trade. You weren't getting a lot of anger or pushback when you express skepticism, and you weren't seeing extreme predictions. But we're starting to see all of those things now. And particularly, with Robinhood and GameStop and the other short squeezes that are going on, there's now a significant population of relatively young people who really believe that this is the path to effortless wealth, and they've already made it to easy street, and they're quite excited about it. And I have to admit that I missed this for a while because I don't hang around a lot with too many 30- to 40-year-old people aside from my kids who are too smart to get involved in this sort of thing.

Any of this sound like crypto :)

Also, you don't have to know much about crypto that it doesn't have an internal rate of return. The other details are kind of irrelevant.

[Glenstache]

What could go wrong?
https://www.nytimes.com/2021/06/28/business/dealbook/icp-cryptocurrency-crash.html

Snark aside, part of this crash appears to be a biased distribution amongst other problems and potentially some insider stuff. Still, crypto is still nascent and tough to have a crystal ball for any type of true long term strategy (my opinion, others obviously see it differently). At heart, it is currency trading without a central economy underpinning it (other than the averaged global economy to the extent that players in the global economy actually use digital currency).

[theoverlook]

It's great we have so many crypto experts on this site to set the record straight.

Investing vs speculating is not a crypto question. It takes zero detailed knowledge about crypto to understand that trading in an asset (ie, gold, crypto, other commodities and currency) is fundamentally different from owning stocks.

[Rosy]

Crypto = speculating, not investing.  GL.

Investing = speculating.  GL.

No, they are different.

Investing is putting money in something that has the capacity to produce value, whether through income streams or appreciation due to business growth, or paying back a loan (bond), etc.

Speculation is buying something in hopes that other people in the future will be willing to pay more for the same thing at some point in the future.

+1

Investments have internal rates of return, like a dividend. IMO crypto is speculation because - like classic cars and baseball cards and gold - the only way to make money is by finding someone to pay more for your holdings than you bought them for.

It's great we have so many crypto experts on this site to set the record straight.

Anyone that has read Bill Bernstein (and if you haven't, you should) knows that this type of pushback against naysayers is a sign of a bubble:

Bernstein: Well, a year ago, I would have answered that in the negative. I just didn't see any of the usual diagnostic signs that one sees during a bubble, which is people thinking that they're going to be coming effortlessly rich, which they chatter about endlessly whenever you go to a party or you meet people casually on a social basis. We weren't seeing people quitting their jobs to day trade. You weren't getting a lot of anger or pushback when you express skepticism, and you weren't seeing extreme predictions. But we're starting to see all of those things now. And particularly, with Robinhood and GameStop and the other short squeezes that are going on, there's now a significant population of relatively young people who really believe that this is the path to effortless wealth, and they've already made it to easy street, and they're quite excited about it. And I have to admit that I missed this for a while because I don't hang around a lot with too many 30- to 40-year-old people aside from my kids who are too smart to get involved in this sort of thing.

Any of this sound like crypto :)

Also, you don't have to know much about crypto that it doesn't have an internal rate of return. The other details are kind of irrelevant.

The reddit crowd taking on the hedge funds attempting to beat them at their own game is an entirely different matter.
Some hedge funds have ethics some resort to underhanded methods something that has been laid bare for all to see in this debacle.

Deliberately driving companies out of business to fill their bulging pocket may be a fine capitalist celebrated action - if you are already a millionaire with the required entry fees of $25M to your own private hedgie club, but it is the sort of elitist action that causes revolutions.

All the reddit crowd did was say "look here" and then decided to take unprecedented action that gasp cost the hedge funds dearly.

Is that a bubble? Come on, it is nothing but a sign of the times. The banking system as we know it is in for a complete overhaul.
Millennials are making hay while they can - this will not last.
Our US regulators are quite good at functioning as gatekeepers to keep the riff-raff from even entering the hallowed halls of high finance.
For 'their' own protection of course.

[Rosy]

What could go wrong?
https://www.nytimes.com/2021/06/28/business/dealbook/icp-cryptocurrency-crash.html

Snark aside, part of this crash appears to be a biased distribution amongst other problems and potentially some insider stuff. Still, crypto is still nascent and tough to have a crystal ball for any type of true long term strategy (my opinion, others obviously see it differently). At heart, it is currency trading without a central economy underpinning it (other than the averaged global economy to the extent that players in the global economy actually use digital currency).

One single crypto project/company failing for whatever reason no longer has a significant impact on the overall crypto market. It is slowly becoming obvious that crypto is taking it all in stride.
A good sign toward more price stability in the future.

I was surprised to hear JPM quoting/suggesting a fair price of $32K to $40K for BTC.
We'll see if they become the crypto whisperer - a couple of weeks ago some banker called it rat poison:).

If it were up to the media and the banks crypto would be dust under Manolo's shoes.
One day it is omg China is dominating crypto mining - this is a threat to the US - the sky is falling.
The next day it is omg China is shutting down crypto mining - crypto is dead.

I mean what technology do you think will be used for our own US digital coin - the Fed coin, rumored to be in the works perhaps coming out in fall.
Blockchain of course. ETH to be specific. Who is hoarding ETH right now - the banks and institutions.
China already developed its own digital coin with the first test runs of 30,000 ATMs taking place now, based on blockchain.
JPM has already started using their own coin, you guessed it, based on ETH.

In reality, moving crypto mining all over the world is the best thing that could have happened. Good for the US so we can bump up our share and ultimately great for a reduction in energy consumption. Elon is right, a 50% drop in energy is quite possible and sooner than you think, besides we should all champion anything that is good for mother earth.

Did you know that after each halving event for bitcoin mining (every four years and we just had one in June)
the energy consumption going forward is cut in half? 
 
You are right we are all wishing for a crystal ball to see which coins/projects/protocols/smart contract tech will win the race and prevail in five/ten years.
No one knows who the winners will be. The competition is just heating up with amazing innovation and scalability.

ETH is a strong contender, they are about to change to a POS model which means considerably cheaper, less energy. Plus improvements to the all-important transaction speed per second.
ETH has serious competition so I see a slugfest down the road.
Then again, let's not forget crypto is still new and global.

I disagree with your point that it has no central economy underpinning it. Crypto already has what it needs and that strength is what has kept it going for twelve years through multiple crashes. It has its own ecosystem. The community weaving the worldwide web of de-fi and the long-time fans, brilliant techies, and dreamers any good project needs to succeed.
Crypto doesn't fit any molds, it disrupts. Get over it - it is here to stay.

Ironically, cryptos first adaption success is in the financial sector.
What I am questioning the most at present is whether the vision of bringing more financial equality can really happen. (which is what the creators intended). Now that it has attracted the attention of big business can the de-fi projects, markets, operations continue to exist. Can they co-exist?

Will countries like El Salvador be allowed to implement bitcoin currency without interference. Will they receive the support they need?
If they do not, this will be an invitation to the dark side.
There is a chance Paraguay and Brazil will join them soon increasing the likelihood of success - perhaps?.

It was incredibly disappointing that this news had no effect on the pricing at all. How could that be?
Then I realized it means the world doesn't care until they see how the bitcoin adoption plays out.
I've no idea what the chances for success are but I wish them luck because it could be a game-changer for their country.
Maybe it will even produce a little uptick in the bitcoin price but I'm not holding my breath.

Just like @Eco_eco who started this thread with a well-formulated crypto strategy, who has been incredibly polite
about the relentless crypto bashing in this thread,
I am retired and can afford to spend my time learning about and speculating on crypto.
Like Eco, I do my homework and risk evaluation every step of the way.

I have a strategy and a five-year plan ...
and
I'm taking notes on who is quoting the greater fool theory as if they had a crystal ball and knew the future of crypto:).

For me this is fun, it is exciting to be part of a monumental shift, oh, all that glorious tech and innovation.
I plan to stay tuned in, pass the popcorn, while the saga and drama of crypto unfold.
Hopium - crypto wallet.....

Just my totally unqualified two cents.

[ysette9]

I guess I am still hoping to be educated on where the value is coming from. I’m not bashing, I’m trying to understand something I mostly don’t understand. I’ll keep my ears open.

[beee]

I guess I am still hoping to be educated on where the value is coming from.

most of the value comes from dreams and hopes to get rich quick, don't you understand? :)

[Eco_eco]

I guess I am still hoping to be educated on where the value is coming from. I’m not bashing, I’m trying to understand something I mostly don’t understand. I’ll keep my ears open.

There are a fair few different sources of value for block chain technologies. Two examples are:

1. Charges for use of the network and associated resources. Essentially blockchains allow people to access some of the resources of the computers involved in the network to process instructions and transactions. The cost of this is apportioned through the value of the cryptocurrency involved. For example people can pay to have a programme executed by the Ethereum network, when this happens a fee is charged by the network, and the value of Ethereum increases a little because the network is being used. Another example is Filecoin, where people use the crypto to have files stored on computers in the network. The potential value created here is enormous as blockchains start to provide an increasing amount of global network and computing resources.

2. Product fees and profits. A product can be released which uses a blockchain, with part of the end users cost for using that product flowing back to the blockchain involved. For example, someone might borrow money using a crypto currency. This would involve a transaction fee which is paid in the crypto currency of the blockchain involved. There are many many products which are being developed which involve the use of blockchains - from things like financial services, insurance, NFT collectables, stock ownerships, currency exchanges, and EFTs, through to digital forms of national currencies. Again, there is huge potential here as blockchains are incorporated into more and more products and services.

On top of all this people talk about Bitcoin and other cryptos as stores of value. Basically this is people parking their dollars or other wealth in cryptos, on the assumption that the price will rise higher than the equivalent value in their local national currency. As a New Zealander, I can park some money in USD  (or any other currency) if I think the US dollar is going to do better then the New Zealand dollar over the time, or I can equally put it into Bitcoin. Lots of people around the world are choosing Bitcoin to save and store their some of wealth in, over dollars and euros.

Crypto currencies have lots of ways to capture the value created by the use of their blockchain. Some examples include:
- transaction fees
- inflation of the crypto currency
- locking up some of the currency into stored transactions.

Helpfully this helps explain why, aside from all the crazy speculative hype (which I think is just a big distraction$, there is real value in cryptos over the medium to longer term.


Edit: fixing up grammar

[Eco_eco]

ETA: Re-reading @Eco_eco 's original post, I see that two of his/her original yield strategies was defi (decentralized) lending and cefi (centralized) lending. I think that lending here means issuing more stablecoins than actual dollars received, effectively re-inventing fractional reserve banking under a different name in a so-far-somewhat-unregulated space. Obviously IF it works, could be profitable. Depends on details. I admit that I don't quite follow the interest mechanism exactly, or whatever replaces borrower interest in these models. As stated, awaiting wiser posters' insight.

The other yield strategies OP mentioned were both mining. I suppose that the "yield" there isn't interest like a bond, but rather a description of some process where the investor actually calculates part of the blockchain and sells the resulting coins, presumably at a profit compared to the calculating/mining cost. I guess the gain could either be due to mining efficiency, or price increases if the coin value rises for some reason. Maybe OP will clarify?

I’m a he.

I’ve answered some of this in my post just above this one about where the value in cryptos comes from.

I was thinking of yield as any increase in value which is derived from the underlying investment (as opposed to profit from a sale of the initial investment it’s self). Ie for a rental property the rent is my yield, for a stock the dividend is my yield. As per my first post I’m not chasing speculative gain, I generally have a ‘never sell the capital’ approach to investing.

In crypto world I currently make yield from the following. There are many ways to generate yield, but these are the ones that I use:

Defi: 
- transaction fees from decentralised exchanges
- interest from decentralised lending (ie I lend some of my Bitcoin and get an interest payment)

Cefi:
- interest paid by various providers such as Celsius and BlockFi. These providers act like a hedge fund and pay some of the profits as interest to depositors

Mining:
- proof of stake ‘mining’. Ie acting as a nominator in proof of stake networks which help (in a very small way) for the blockchain to be secured. This gains me inflationary rewards as in return of locking up my deposit in the network.

Sorry for the crypto jargon but hopefully this helps explain where I’m coming from.


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