How can you maximize your exposure to appreciating assets while maintaining liquidity to buy nice things for your family?
The Coinbase card has been announced and the waitlist has been created. The Nexo card is also on the way. What are the benefits associated with each card? It’s very important, as a cryptocurrency investor in a bull market, to maximize investments and maintain a lot of liquidity so that our spending power isn’t crippled by our overall maximization strategy. Let’s have a look at each one of these new cards, then I’ll explain my current understanding of liquidity strategy now and what it will look like depending on various moves that could be made by these companies.
The Coinbase Card
Coinbase offers interest on a number of assets and plans to offer a card which would allow users to earn cashback by making purchases. One of the most interesting possibilities opened by this development is the ability users will have to hold assets such as ATOM or XTZ, earning staking rewards of 5%, on their checking accounts with complete liquidity and even cashback of up to 4%.
This development will make cryptocurrency the most lucrative sort of checking account on the market. I’ve got a version of this I’ve been using which I explained in this article, but the cliff notes are simple enough: I stake ATOM and BAND at 10% and 17% respectively on a 3 week lockup via Atomic Wallet. I unlock my assets periodically to move between the different return rates and occasionally get into a more liquid position — Coinbase would allow me to choose the best of both worlds with ATOM if I were able to hold a significant amount of it on Coinbase.com and spend it directly.
The Nexo Card
Nexo Wallet is a DeFi-enabled wallet which allows users to create liquidity for their portfolios by holding BTC or ETH and leveraging against these positions without selling the crypto assets. My use for this has been substantial lately, as I can borrow up to 52.5% or thereabouts against my holdings. I’ll just deposit twice the amount of BTC I need into Nexo Wallet and borrow USDC against it, which I then send to my Venmo debit card and spend directly.
I incur a few dollars in fees each time I make these transactions. Having a Nexo Card would enable me to avoid these fees while retaining the ability to sell the underlying BTC any time I like to maximize my spending power directly. However, I believe I prefer the fees I incur currently because it enables me to maximize my BTC loans. The goal is simply to leverage against the asset at the highest possible price point, providing protection from price dips for spending power as well as enabling the user to selectively choose when to sell BTC to pay off the loans.
The Best Way To Maximize Your Crypto Holdings And Liquidity
If, as I do, you find yourself tempted to believe that the current situation represents a bull market, the goal you’ll devise for yourself is to maximize your exposure to the market. The way to do this is to hold your assets in altcoins until it is time to “spend” them by selling for BTC or ETH. Once you’re in BTC or ETH, leverage against these assets to pay your bills and so on by either withdrawing your money via Coinbase to a card that allows you to make purchases or by sending the money in XLM to Stellarterm and buying TERN with it to then spend via your Blockcard.
I use this option rather scarcely these days, after a somewhat heroic moment last month where I was able to get cash back on a purchase I made of a new computer using TERN that was up about 25% from where I’d purchased it. The result was that, the money I had made by trading ATOM was about double where I’d bought when I sold it. So it went very well for me, and I even got almost $100 in cash back!
But it doesn’t always work out that way and trading profits are tougher to come by these days. So the more conservative approach, spending USD directly, has been the one for me for the last little bit here.
The hope is that, by leveraging against Bitcoin instead of spending my money directly, we’ll see a major opportunity for some profit in the next few months. Just imagine if Bitcoin pegs $30,000! I will feel infinitely better about leveraging against it if I’m looking at an opportunity in the next few months to spend multiples of cash I could have simply handed away. It could be good enough to pay the same bills multiple times without adding any more money to the account I’m drawing from!
The skeptical read here is that the current bad news in the world outweighs the good news. A significant economic drawback is on the way after more sideways movement in crypto markets, and I’m going to end up back where I started by withdrawing twice the money I have invested to pay these bills when Bitcoin falls and I have to start to sell my stash. Ultimately, that’s the risk we run when investing. The upside is that I’m taking a limited risk — I can never lose more money than I started with, and by spending leveraged Bitcoin instead of just simply selling crypto, I turn each purchase into an opportunity to profit if and when Bitcoin prices increase substantially.
The Benefit Of The Coinbase Card
Given that Nexo can transfer USDC to Coinbase with no fee, it’s likely that the Coinbase card is better than the Nexo card. The Nexo card is a solid liquidity play, but its weakness is that it will not allow the user to choose leverage at any time other than the time of purchase. Hence, if BTC price dips, so does the user’s liquidity pool. Why would we submit to that, when we can simply lever against the BTC price whenever it reaches a new maximum with no real penalty and then spend the proceeds (or reinvest them by purchasing additional BTC when the price goes down) as if the BTC price had stayed up?
Remarkably enough, the major impact of DeFi seems to be to make these price-based jiu jitsu moves possible without most of the traditional problems that occur in debt financing. If the price drops suddenly, our BTC could be liquidated, so we must remain vigilant and perhaps even strive to maintain a buffer by selling small amounts of BTC when the price reaches new heights, but it appears that our ability to harness the market’s power to spend more money than would otherwise be possible seems likely to be a major selling point as the markets expand.
