The Best Bull Market Strategy for Conservative Investors
|By Chris Coney|
A few nights ago, while playing an evening game of Fortnite, I was randomly matched with a teammate who (like me) is also from the UK. Let’s call him Lee.
We didn’t talk much about the game. Once Lee asked me what I do for work and found out I was a specialist in decentralized finance, that is the direction the conversation took.
He admitted to me that he wasn’t invested in crypto and never had been. Thus, he fired a whole bunch of questions at me which “the gym bros” (as he referred to them) couldn’t answer to his satisfaction.
The Good and Bad of Volatility
One of the answers I gave to his questions involved me pointing out that in a bull market, Bitcoin (BTC, “A-”) and other crypto assets can often go up or down by 10% in a day.
Lee admitted that he didn’t think he could stomach that kind of volatility.
In answer to another one of his questions, I pointed out that historically anyone who bought Bitcoin and held it for at least four years made money.
His response to that? “Four years is a long time though.”
From Lose-Lose to Win-Win
Lee’s answers to me seemed paradoxical.
He was saying he didn’t want to hold a crypto investment for four years because that was too slow.
Then on the other hand he was saying the possibility of his investment going up 10% in a day was too fast.
This conflict is not exclusive to my new friend Lee. This is the exact pattern I have seen a hundred times before.
Holding Bitcoin for four years dramatically lowers your risk ... but people don’t seem to want to do that.
But neither do these people want to make short-term trades with the possibility of making or losing 10% in a day.
It was after this conversation that I asked myself, “What would be the optimal crypto investing strategy for these people?”
What investing strategy could I impart that finds a middle ground? Where the volatility is low, but the gains are still orders of magnitude higher than traditional finance.
The short answer is stablecoin yields.
More specifically, providing liquidity to decentralized exchanges.
A crypto bull market is like a gold rush. Everyone rushes to the mountain with the hope of striking gold and becoming fabulously rich.
That is akin to hoping to find a crypto gem that makes you tons of money.
The reality is, both in a gold rush and a crypto bull market, most people leave with less than they started.
A picks and shovels strategy is one where an investor doesn’t participate directly in the gold rush but rather provides services to those that do (by selling pickaxes, for example).
That way the vendor makes a bit of money on every person who participates in the gold rush without taking any risk in actually finding gold themselves.
Trading Volumes Skyrocket in a Bull Market
As you can imagine, when crypto assets are going up by as much as 10% in a day, the amount of trading volume increases significantly.
This is when decentralized exchanges facilitate a lot of transactions… and they charge a trading fee on each of those transactions.
And you can earn a share of those trading fees by investing your stablecoins for as much as 20% APY.
By investing your stablecoins in a liquidity pool, you are effectively helping to finance the store at the base of the mountain that sells the pickaxes.
In exchange for that investment, you get a profit share on every sale.
But using your stablecoins to provide liquidity to a decentralized exchange is even better since your capital is not locked up as equity in a company and can be withdrawn at your leisure.
This solves the problem of having to stomach crypto volatility since the strategy uses exclusively stablecoins, which have their value pegged to the dollar.
But it also offers returns in the double digits per annum due to the wild amount of trading that goes on in crypto.
And it gets better.
The 20% APY is a figure I took based only on a recent rally in crypto prices.
As the snowball builds into a full-blown bull market, I expect these yields to climb even higher.
If you want to begin your investigation into these types of opportunities you can go to the stablecoin yields section of DeFi Llama.
Then you can sort in descending order using the Base APY column.
Here you can see the top 10 yields ranging from 536% at the top to 22.68% at the bottom.
And this list doesn’t stop there. This table has over 1,200 rows in it, listing different opportunities.
If you want to greatly speed up the process of getting to the best opportunities in this giant haystack, then check out my premium weekly newsletter Crypto Yield Hunter.
This is a service in which I identify the best opportunities for you and then just send an alert recommending exactly what to invest in, for how long and how much.
It is a real time-saver, so I hope you check it out.
But that’s all I’ve got for you today. Let me know what you think about this topic by tweeting at me.
I’ll catch you here next week with another update.
But until then, it’s me, Chris Coney, saying bye for now.