The Wolf Den #479 - Taking A Loan On Your Crypto
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One of the most popular long-term strategies for savvy investors is to take a loan against the assets they own instead of selling and triggering a taxable event. You should expect to pay roughly 20% to 40% in the United States on the sale of any asset, including crypto. Investors are desperate for any legal way to avoid paying this steep price, which is why loan services have gained popularity.
BlockFi, Celsius Network, Abra and Nexo are some of the popular platforms offering crypto loans. The process is easy and quick. You don’t have to go anywhere, talk to anyone, or share extensive personal information.
Here are the typical steps for obtaining a loan. First, you select an asset as collateral that the platform accepts - this is typically Bitcoin, Ethereum, Litecoin, or some stablecoins. You then enter the desired loan amount. The platform then generates an amount of collateral that you need to deposit to receive the loan. As a rule of thumb, the platforms require a loan size minimum - $10K on BlockFi. The beauty of putting up collateral is that there is no credit check or process required - they have the coins and you have the loan.
After entering the desired loan amount, the program back calculates the collateral required plus interest. The platform is incurring risk and clearly needs to make money, so the terms are not the same as standard loans. The platform generates a figure called a "loan-to-value" ratio which compares the amount of your collateral with the appraised value of the loan. Expect this figure to be anywhere from 30%-50%. A 50% LTV ratio means the loan is half the value you put up as collateral. In other words, if you want to borrow a million dollars, you will have to hand over 2 million in coins. Clearly, this is a far cry from a 3% mortgage or standard loan with a very small down payment.
To get a lower interest rate, you need a lower LTV, which requires more collateral. Each loan is different and varies based on the risk you are willing to incur. It will typically be settled within a day and can be paid out in USD or a stablecoin. You can do whatever you choose with the loan - the money is yours. If your desire is to buy crypto with your loan, nobody is stopping you.
Just remember, the house always wins. You can win too if you buy crypto with good timing, but the house is still making money.
There is risk. If you fail to pay back the loan in full or make the interest payments, you will have overpaid dramatically for the loan. Further, if the price of your collateral drops significantly, you will be at risk of a margin call and liquidation of assets if you do not have more coins to add as collateral.
I expect this option to become more popular and efficient further down the road. Billionaires do it all the time with their assets to avoid being taxed - it’s completely legal. As more platforms offer this service, I expect consumers to receive better terms. This process is still in its infancy and will likely be adopted by legacy banks in the future.
Like any strategy, this one comes with obvious risks so do it at your own discretion.
In This Issue:
Taking A Loan On Your Crypto
Bitcoin Thoughts And Analysis
The 10 Step NFT Checklist
Exchange Outflows Hit 5 Week High
NFTs On Amazon?
Portuguese Bank Gets Crypto Green Light
Jack Dorsey's First Tweet Is Worth Less Than A Crappy Used Car
My Recommended Platforms And Tools
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Bitcoin Thoughts And Analysis
I just spent roughly 30 minutes scanning charts and came up with... nothing. This market is trading sideways, Bitcoin is boring, and the few meaningful altcoin moves are unpredictable. It's hard to find a diamond in the rough when things are generally trending down, so probably not worth trying at the moment.
DAILY CHART
For now I am simply watching for Bitcoin to hold this higher low and continue the pattern. There is not much else to see. Any further drop would likely give us more bullish divergence on multiple timeframes, which I will also be watching for.
Right now, the market isn't giving us much actionable info. Good time to get a hobby or read a book.
The 10 Step NFT Checklist
Before you buy an NFT, there are a number of important questions that need answers. I've compiled a list of 10 actionable steps that need addressing before you invest. I will briefly outline below why each of them matters.
Who are the founders? - Anonymous founders can be okay, but if the founders are doxxed, research them!
What is the floor price? - This is the cheapest price for an NFT of that collection. Sometimes it makes sense to buy at this price and sometimes it makes sense to buy above the FP for a better rank/rarity.
What is the weekly volume? - A high weekly volume is only good if the floor price is rising. If the weekly volume is high, this could just mean selling. Look for strong volume and a rising floor price together.
What is the total volume? - Like total market cap, look for NFTs that have strong lifetime volumes. Don’t get stuck in a collection that is slowly bleeding out or never moves.
Are you in the Discord? - This is where all of the important information is about your collection. Join the Discord and start networking.
What is the roadmap? - If the future vision is missing or weak, move on to the next project.
Do you follow the socials? - Similar to Discord, following the socials gives you a sense of how popular your project is compared to others. Don’t join a ghost town.
Does rarity matter? - Don’t make the mistake of buying a rare NFT in a collection that makes it clear rarity doesn’t matter for utility.
What is the utility? - If you can’t answer this question, stay far away.
Are you whitelisted? - This is the common method to buy an NFT early before it goes public. For hyped projects, you want to be whitelisted for the best prices.
Admittedly, I have not focused on NFTs as they have exploded over the past few years, except for one or two projects that I love. But this is a decent roadmap for finding value in the space and avoiding the pitfalls.
Exchange Outflows Hit 5 Week High
“Historically, large quantities of BTC moving off exchanges leads to price rises given a few days for the pattern to hold.”
I have mixed feelings about utilizing these metrics for my trading. Outflows can quickly reverse and become inflows, and I have never found this data to be actionable, even though many claim that it precedes a move in price. Either way, it is always notable to watch large movements of coins in a short period of time.
Here is another take on the narrative.
BTC buyers are far from in short supply at $40,000 as Bitcoin disappears from exchanges.
NFTs On Amazon?
NFTs on Amazon? Maybe. Some day. But probably not soon.
This is the more notable tidbit from the piece.
"Speaking to CNBC on April 14, Amazon CEO Andy Jassy said that the online shopping behemoth is not even close to enabling cryptocurrencies for retail payments on its platform."
There have been rumors for years that Amazon would incorporate crypto payments, but that seems like pure hopium and conjecture. He mentioned in passing that NFTs were interesting and something that Amazon would look at down the road, but it seems clear that Amazon has no immediate plans for crypto.
Portuguese Bank Gets Crypto Green Light
Portugal has long been crypto friendly, with effectively 0 taxes on the asset class. It is so crypto friendly, that every time I mention US taxes, someone jumps into my replies and says "just move to Portugal." Sadly, taxes follow you.
Bison Bank is the first in the nation to be granted a crypto license, meaning they can offer digital asset services to high net worth individuals.
This is seemingly how it always starts - wealthy clients get access first. The same is true of the large banks in the United States.
What is important is that the Central Bank in Portugal has taken this first major step. All banks will follow.
Jack Dorsey's First Tweet Is Worth Less Than A Crappy Used Car
This story has had me giggling for days.
Sina Estavi famously bought an NFT of Jack Dorsey's first tweet for $2.9M last year. Why? I have no idea. It was the middle of the NFT bubble when people would literally spend any amount on any hyped NFT.
He put it up for auction on OpenSea with a target of $50M.
The highest bid when the auction closed was about $10,000.
Be careful what you buy.
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The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this e-mail constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.