You have to deep dive investment if you are going to do at all well. Handing your investment decisions to others or skimming the surface of the investing dynamic you are committing your capital to is a well-beaten path to underperformance.
I am deep diving DeFi (decentralized finance) because it is the next big thing. Period.
Having been singing the praises of bitcoin this year from the pit of around $5,000 until today’s $18,000-plus, I am a happy hodler. Meanwhile DeFi is blowing my mind.
So today on my rounds I noticed that Ethereum transaction fees are on the rise, breaking out of their downward channel and heading up. I noticed because a DeFi transaction made me wince at the cost.
Rather than crying over a buck or ten, it led me to the obvious conclusion that ether is about to blow up again, because rising transaction costs is the same as rising transaction activity and thereby rising interest.
Why wouldn’t ether be on the edge of a big bull move? If bitcoin is going to its all-time high with a strong possibility of sailing right through it, why wouldn’t ether follow and head for the no-brainer $1,000.
I could still buy a big slug of ether because I’m still heavily in cash awaiting the catalyst that could crash U.S. stocks. The Federal Reserve is not an ironclad guarantee of the current stock bubble and a crash may still happen even with vaccines in the pipeline. However, diversification remains the golden rule and I’m loathed to actively break that law with my crypto even when price action is kind of breaking the rule anyway by sling-shotting my current positions moonward.
So rather than invest irresponsibly I decided instead to invest in more ether recklessly. What is more, I decided to go full DeFi in the process.
I have a bunch of long-term token positions like uniswap, kyber, compound and the like. So I lodged them with Compound and Aave, crypto saving and borrowing platforms. I borrowed 50% of their value in USDc coins, a stablecoin worth a dollar each, and then used that to buy ether.
I am now a margin trading crypto degenerate. I wanted to do this, to skill up on these platforms and go through the tortuous process of all the Ethereum wallet clicking and spending that goes into setting up this sort of trade. It really takes a lot of focus and attention to get it right.
So the upshot is I’ve borrowed a chunk of stablecoin at about 7% a year interest at a cover of about 200% and used it to buy ether on the basis that it is going to the moon.
So what have I learned?
You have to move in lumps of at least around $10,000 or the costs are prohibitive. The work flow is important because you can easily end up sending crypto on various unnecessary and expensive trips, especially if you don’t plan the campaign out properly, with each leg coming at a cost. As such, you need to know what the platforms expect you to borrow, which is different for each, so once again experience has a real value, because getting it wrong costs transaction fees.
I feel I’ve learned that you don’t want to be too leveraged because if prices dump—and boy can they do that in crypto—the auto-liquidation bots that monitor positions without enough collateral will swoop and give you a 10% haircut and that wouldn’t be nice at all. You can, of course, use your purchased ether as collateral and that all gets recursive.
The key takeaway is that this is risky stuff. There is so much to go wrong and while it all seems both surreal and gamified it is also real money in play and quite a lot of it.
To play this game with six-figure or seven-figure sums, and people do, you really need to have nerves of platinum or perhaps no nerve endings at all, but to play it with low thousands is going to be expensive. Going five figures seems brave and it most likely is.
So the idea is, ether will rise to say $750 a coin. I will sell it for USDc and repay the USDc loan I took out and pocket the profit, perhaps leaving it in ether for the ride to $1,000. If it goes south, I’ll simply repay the loan, keep the collateral tokens and go back to being a sensible boring unleveraged crypto hodler. In any event I will have tasted another part of the DeFi phenomena, where I borrow a five-figure amount, with no form filling, no human in a call center somewhere in Asia to be honored with my business and please hold the line, no KYC (know your customer), no AML (Anti-money laundering), no 3%-5% currency conversion rip-off, no wait for hours or days, no arbitrary T&C to scroll through. This was a pure, click the wrong button and mess up a lot of money, libertarian, don’t stand on me, anarcho-capitalism finance, not in some visionary futuristic talk fantasy, but right on my PC, right now. That is exhilarating.
To experience that rush was why I levered up some crypto, like the time I walked into a cowboy saloon, wobbled up to the bar and ordered whiskey in a shot glass to down it in one gulp to JFDI (just flipping do it), because until you do, you will never actually viscerally understand what this dawning new reality really is.
And what it is, is amazing.
Chambers won Journalist of the Year in the Business Market Commentary category in the State Street U.K. Institutional Press Awards in 2018.