Saving Plan Modification - Coinbase Debit Card
In recent posts, I have been deliberating about my approach to my savings from my paycheck. I am limiting my bags to Hive and Bitcoin. The question for me was how to allocate my meager savings to ensure some gains and reduce risk. Here are the posts referenced.
In the end, I have decided to split my savings evenly between HBD and BTC. My HBD savings will provide a steady income. My BTC holdings will provide capital growth.
Ideally, I would deposit my BTC into my Ledger Nano wallet. However, I am going to take a risk by starting off my BTC bags on Coinbase. The deposits will end up totaling up to $5000 out of pocket. Anything beyond that will directed to the Ledger Nano.
On the chance that 2023 sees a bull market for crypto, I want to have a stake in BTC that can grow with the market. If I have $5K in BTC now, then when BTC hits $160K, that will have grown to about $50K. If BTC stays flat, then I'll still have about $5K in BTC.
The reason for leaving my BTC on Coinbase is that I can use it as collateral to borrow up to 40% of my BTC value. At this rate, the loan would be highly over-collateralized. For my $5000 in BTC, I'd be able to borrow up to $2000. Obviously, if BTC moons, then my credit limit would also go up with it.
This is where the Coinbase prepaid card comes into play. There is an option for 1% cash back in BTC. If I stop contributing savings at $5000 out of pocket, then the debit card could continue to contribute beyond that. I'd be growing my bags and my credit with house money.
If something were to take Coinbase under, I could live with a loss of $5000 out of pocket. I would not like it. But, I'd survive.
Earning 1% cash back from the Coinbase prepaid card is not all that exciting. But, if BTC goes 10X, then that 1% will turn into 10%. So, as you can imagine, over several years, this can add up.
As you may have guessed, this part of the plan is not about building wealth. It is about building credit. With credit, I can buy big chunks of assets such as HBD, which pays 20% interest. Or, I can buy REITS, which pay out dividends. Or, I could use that credit to invest in a business. Maybe I need a down payment for a car. You never know when you'll need credit. It's good to have credit ready to go for those times when you need it.
What is especially useful is credit that grows.
The risk, obviously, is having BTC on an exchange. This is why I'm limiting my contributions to $5K. Beyond that, my savings will go to my Ledger, or entirely to HBD.
You may wonder why not use DeFi lending? It's because this is a mess when tax time rolls around. It annoys me to have to figure out how to export transactions, convert them to the proper format, and find a website that can decipher what I did. Coinbase, on the other hand, integrates easily to TurboTax. I can finally get my taxes done by the April 15 deadline.
I would suggest to anybody leaving their life savings on a centralized exchange to reconsider. We all know it's a bad idea. But, if you only keep what you're willing to lose on an exchange, then you have chosen your level of risk for the expected payoff.
In some regards, what I am doing is a bet that Coinbase will weather the bear market. I think they are too well-connected to be allowed to fail. For this reason, I have some confidence in the platform. The biggest risk with Coinbase, however, is not them going under. Rather, they could one day decide to lock me out of my account like they have many others. Again, my best bet is to limit my exposure. At one point, I'll withdraw what I deposited and continue to play with house money.
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