If I paid for things with it then every transaction would require calculating capital gains/losses. And it's far worse than conventional assets like stocks because at least the brokers track that stuff for you.
I completely agree that the instances of use as currency is vanishingly small.
Visa: get card from wallet, type in number, type in CSC code.
Cryptocurrency: pull out phone, scan QR code.
In the US you can get a 2% rebate on what you spend with a credit card. In effect, you are credited back most of the merchant fees baked into transactions.
In which case cash or crypto requires a >2% discount to break even.
1. Park your ETH/WBTC/BAT (a whole bunch of other tokens) on a smart contract as collateral so that you can withdraw a token that is pegged to the USD, or just go to a regular exchange to buy the stablecoin.
2. Use this token to make transactions online.
Tax advantages: you are not selling your volatile crypto, so you don't have to declare any sales or profits. On the other hand, if the crypto you place loses so much in value to the point where the smart contract liquidates you, you don't need to return the stable token and you can get a tax write-off.
With something as volatile as cryptocurrency it's not exactly a crazy idea that you'd buy at say $30k, take a loan at $60k and get liquidated at $50k and get stuck with a big tax bill
It uses the same “trick” billionaire CEOs use when they borrow against their shares to fund spending, instead of selling some shares and calling it “income”.
And if you peg your money to fiat, aren't you just ending up back where you started?
What you're describing sounds essentially like being my own brokerage back office to provide cash services to myself. That's nice for people who enjoy that sort of thing, I guess.
Not if you are talking about the idea that only crypto allows you to transact without a middleman and without the risk of having your funds seized or your account canceled.
But if you are simply talking about crypto as an way to invest: I can tell where I can park USDC and DAI and get 2% returns per month - and have gotten that consistently for the last 8 months. Can you tell me any traditional bank that can offer this good of a deal?
Well banks offer lower rates of interest, but they're FDIC insured, they have nice (ish) apps, they have regulations to protect consumers, etc.
I can tell you PLENTY of places i've parked my money (for the last 8 months) that have gotten much more than 2% return - but they don't have FDIC insurance (just like crypto).
The problem is compounded by the fact that people have every incentive to astro turf this technology to promote a get rich quick bubble. So the people claiming these accounts are safe may be lying. I would go so far as to say only a pyramid scheme can offer 2% monthly returns on a technology asset that produces nothing and has no inherent value.
First: I am sure you understand the difference between saying something has returned 2%/month on a given period and saying that something can offer "2% monthly returns". At no point I claimed guaranteed performance, all I did say is that I did get these returns on a very low-risk protocol and only used stable tokens to do it.
Second: the reason that I managed to get this type of return is because I provide liquidity to pools that have a better utilization rate (compound pool on Curve) than others that have more "popular" tokens. Effectively this means that if more people join the pool, its profitability will actually go down.
Third: the "profit" (mostly) comes from selling the tokens minted from the protocol that you are using (e.g, I am using Curve, so they mint their own CRV token as a reward for liquidity providers ) and not "in kind". The amount that you receive "in kind" is much smaller (to the order of 0.05%) and corresponds to some "transaction fee", so it's not compounded. It is physically impossible for these protocols to create more tokens out of thin air and therefore pyramid schemes (strictu sensu) are impossible to happen on the blockchain.
Am I "promoting a get rich bubble"? Quite the opposite: if you ever find me on these DeFi subreddits, you will find me clearly recommending people against buying these governance tokens. People buying them are speculating without any clue of the fundamentals of the protocols or how a competitor can come and destroy any kind of claimed competitive advantage. I lost count of how many threads I got on /r/uniswap telling them that any sensible person would never buy UNI, yet the token went up more than 10x in price in 6 months. For them, I am the conservative one because I am selling these tokens as early as possible, but I am more than happy to take their money.
Is this going to last for a long time? Quite unlikely, but my strategy is as low-risk as it can possibly be in the space, it keeps me liquid (I can withdraw my funds anytime), and has virtually no downside. Even if the profitability went down to 2%/year, it would be a better deal then leaving the money in a savings account.
To sum up: I'm all for healthy skepticism and informed criticism, but your comment provides neither.
If it was not your intention to imply your crypto scheme was as safe as a bank account or a traditional bank product like a CD, you did a bad job of communication what you were trying to say.
If you communicate (however unintentionally it might have been, I'll grant you the benefit of the doubt) like a sucker roped into ponzi scheme, it's only rational to assume you are one.
I didn't care about the details of your speculative business, I cared about the giant red flag you raised when you compared what you were doing to a bank offering.
In no point I am saying that what I am doing is "just as safe as a bank". And when @kobasa pointed out that it is indeed possible to have above-average returns given the information asymmetry, you doubled-down on your assumption and implication that I either (1) don't know what I am talking about or (2) am somehow being dishonest.
Frankly, you are being quite offensive and reading only whatever confirms your worldview. This is not the way to keep a conversation.
Smart contracts are somewhat Lindy: the longer they are in place, the more of an indication they are secure. I wouldn't recommend putting your money on any new contract, but Curve is around for long enough that I don't believe that it will get hacked in the next years. Sure, it is not as "secure" as a FDIC-insured savings account, but it is not degen-type of investment either.
What if you deposit your cash in a regular brokerage account and every week sell an equal amount (that is, one contract for every 100 shares you can afford to buy) of at-the-money puts on GLD? This is literally digital gold.
If the probability of gold going to zero (or GLD) is essentially nothing, and inflation is inevitably going to pick up, then this feels plausibly "risk free". The worst that can happen is you are assigned some shares, which you can sell or sell calls on. In any case, people are apparently willing to pay a surprising amount for short term volatility on it.
Even better, you can buy the cheapest longest dated out-of-the-money put to lay off some risk at minimal cost.
You may be able to do this on Robinhood, I haven't tried.
Just an idea...of course analyzing how this could hide large risks would be interesting.
Can you really imagine selling insurance against gold cratering in the near term being disastrous, barring leverage which can always ruin you?
I think it's probably important, for managing risk, to have the self control to only hold as many short contracts as you have cash for assignment, and also not to get greedy when the price moves in your favor, but wait until the end of the week to swap them for a different strike.
The downside scenario is gold dropping 50%, or 100%, which just seems implausible, maybe more implausible than in living memory.