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Call of the Wild

Mike Zaccardi, 3:13 am ET

CRYPTOCURRENCIES have come under selling pressure over the past few months. That might have some readers thinking about buying the dip in, say, bitcoin or ethereum. Those two cryptos, the largest by market capitalization, are off more than 30% from their all-time highs.

I’ve been dabbling in digital assets, but not in the way you might imagine. I put about 3% of my portfolio into stablecoins. Stablecoins differ from the well-known cryptocurrencies we often hear about. How so? They’re pegged to the value of, say, the U.S. dollar or gold, thus offering more price stability.

Why am I doing this? I admit it, I’m thirsty for yield. Stablecoins offer interest rates of up to 9%, depending on the coin you pick, where you invest and the amount involved. Those high interest rates are made possible because the crypto exchanges involved are making even higher rates by lending out the money to, say, those who want to borrow against their cryptocurrency holdings. I bought USD Coin (symbol: USDC) through BlockFi.

I consider this speculative money. Last year, I detailed other fringe investments I’ve purchased. Fear not: Most of my money is far more conventionally invested. I still have some 80% of my portfolio in your typical low-cost index funds.

My thinking: Stablecoins complement my emergency cash position, which currently earns next to nothing in a bank account. I also have $20,000 in Series I savings bonds that will pay perhaps 3% to 4% a year over the next five years.

Stablecoins should provide an even bigger yield. But there’s also a risk that I log in one day and see it all gone. I’m fine with that possibility, though I also see the risk as small.

After reading about stablecoins and hearing from other investors, I think there’s something to the story that my generation—millennials—may come to view stablecoins as the new money market account. Whether that happens or not, I like the idea of dipping my toe into cryptocurrencies without having direct exposure to the rollercoaster ride offered by digital assets like bitcoin and ethereum.

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Eric Copland
Eric Copland
4 months ago

Since BlockFi is not available in NYS, can someone purchase USD Coin thru Circle Yield directly?

Mike Zaccardi
Mike Zaccardi
4 months ago
Reply to  Eric Copland

I’m not sure on that. There are several other places like BlockFi though.

Christopher Viscomi
Christopher Viscomi
4 months ago

How do you report interest to the IRS? Is there a 1098 issued? Is it considered interest in the usual sense?
Thanks!

Mike Zaccardi
Mike Zaccardi
4 months ago

Looks fairly straightforward. I’ll find out next year. https://www.blog.cointracking.info/earn-interest-on-crypto-the-taxes-guide

James McGlynn CFA RICP®
James McGlynn CFA RICP®
4 months ago

I’ll tiptoe into the wilderness by earning crypto points from my credit card purchases.Besides the cryptocurrencies seem like frequent flyer miles anyway and might be diluted later in a similar fashion.

Mike Zaccardi
Mike Zaccardi
4 months ago

Yeah, I don’t plan on buying any non-stablecoins.

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