November 2020, was a fantastic month for Bitcoin and most other cryptocurrencies as they saw anywhere from 25% - 80% gains in price pretty much across the board. This has always been the traditional way to get rich quick with cryptocurrencies. However, for a 20-something year old I am looking cryptocurrency as a means of financial freedom, but far more than previous claims. What the hell do I mean?
At the end of the ICO boom in 2018 and the beginning of crypto winter companies that raised money (and still had it) were hard at work creating value. One of the most common tools out in the blockchain ecosystem are what are referred to as DeFi (Decentralized Finance) tools. Using blockchain as the intermediary and crowd sourcing the liquidity companies like Nexo, AAVE, Celsius, Blockfi and almost a hundred others offer low interest high yield loan opportunities that crush banking offers in their wake.
The platforms offer on the low side 3-5% and on the high side 20-40% Annual Percentage Yield from holding your crypto in a savings account with them. The platform then does what any other bank in the world does and trades your money to make more money. What traditional banks CAN'T DO is share the upside to the same extent. Without the same overhead: salaries, office spaces, executive bonuses, sunk costs, and billions of other dollars spent to operate a traditional bank. These new DeFi platforms offer a savings rate that is so attractive it does not make sense to store my money in the traditional banking products of my Fathers day.
As a 20-something year old I have been lucky enough to buy into bitcoin while in university and have relatively held until now. While I am a very poor individiual to any bank in my country, I can use one of the mentioned platforms to receive up to 50%, in cash wired to my bank account, of my value held on their platform.
As a 20-something year old my credit limits me to only afford things that are within reach of my expected earnings. DeFi and cryptocurrencies have flipped that on their head to say lets share on the upside and I will give you cashmoney to live your life for access to trade your crypto. Famous Bitcoin eccentric billionaire Brock Pierce used his Nexo account to purchase a house, without selling any satoshis.
These DeFi platforms have a fraction of a percentage of operating costs and their investors get paid dividends more frequently than any other investment. This is the scenario, I buy 1 bitcoin for 18K USD today, I send it to Nexo and they wire me <9K USD to my bank account. I still own that bitcoin, there is a just a debt owed for me to retrieve it and maximize my gains. In a bull market that bitcoin tomorrow will be worth more than it is today, lets say in a month it goes up another 25%, that is 12.5% more capital that I immediately have access too, or I could use those gains to sell some and pay off my original loan.
The alternative scenario is if I buy 1 bitcoin and leave it on Nexo for a year then I will have 1.1 bitcoin, paid out daily. This is a 10% gain over the year paid out in the currency I have staked on the platform. Alternatively on my loan I do not owe them 50% of a bitcoin but I owe them the converted USD value at the time of the loan.
Playing this scenario out further the longer you hold a position the more gains in that crypto there is to be made. When I think about my retirement in 40-50 years I honestly don't know if banks will be around in the same form as they are now. Not saying that the platforms I mentioned are better positioned for that type of timeline but the growth opportunity is clear when using a blockchain enabled lending platform over a traditional financial product.
Blockchain and Bitcoin is here to stay, as an investment the only percentage of your portfolio that is wrong is 0.
I am not affiliated with Nexo or any DeFi platform but am an avid user and consider the tools made available to be revolutionary.