Lending out Crypto or how to generate other income streams?

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fireeu
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Lending out Crypto or how to generate other income streams?

Post by fireeu »

I am a long time reader of the forum, blog and book, and started to invest in Bitcoin early 2017. I am daily at it now and after almost 4 years, I am close to my exit goal. I approach the 3.5 Mio Dollar milestone and want to cash out and start FIRE.

I have a wife, two kids and want to cover my expenses, but still realise I just live ones on this planet so who cares if I want to drink a nice Whiskey every now and then. Therefore I waited for this sum to come together so I can have a solid 4-5k USD a month to live off.

Now I am wondering: How do people generate their 3% income stream? It doesn't seem to hard with the latest central bank bonanza to earn around 10-12% on a boring ETF. Since I am 99% in crypto (Bitcoin and others), I wonder if anyone has experience lending out USDC for example (currently 10% on BlockFi).

I have to trust someone with my money to generate income, either a bank or a institution like BlockFi, but would be curious what other options there are to generate income off this amount of money!

Laura Ingalls
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Re: Lending out Crypto or how to generate other income streams?

Post by Laura Ingalls »

I think a bit more info would be useful. Where do you reside and pay taxes? How old roughy are you, spouse, and offspring? Any non crypto assets? Social security at some point?

What you have accumulated should last the rest of your life with a burn rate of <$5k a month. OTOH keeping it all crypto personal seems very anxiety inducing. How would you feel if crypto fell back down to 50%? 90%?

Quadalupe
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Re: Lending out Crypto or how to generate other income streams?

Post by Quadalupe »

If I recall correctly, someone asked a for advice in a similar situation a few weeks ago. The consensus was that you'd be better off stating your case at the boglehead forums, since there are more people there with your NW than here.

My 2 cts is that your main focus should be on capital preservation, not yield. You can check out portfoliocharts.com for various portfolios and search for a portfolio with the 3% yield and low variance.

fireeu
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Re: Lending out Crypto or how to generate other income streams?

Post by fireeu »

I am in Germany, so I have 26% of capital tax and around 800-1k a month on health insurance cost for my whole family. I can keep renting since rental protection is quite high, and just repairing a roof for example on my house would cost me more than just keep renting here. I could also imagine buying some small house in the country side.

Re: Everything in crypto. I would "cash out" into stable coins (USDC) and lend it for 10%. So I think Bitcoin and friends will stabilize, but this will take another 5-8 years, which I don't want to wait on. As I mentioned: Spouse, 2 kids, paid into the German retiremnt fund since I am 16. I have stocks from my employer, but 99% is in Bitcoin at the moment (my average price is 6k/Bitcoin, so even dropping by 70% would be "fine" in terms of: I didn't loose money).

I am equipped mentally to deal with a 50% drop, which might come in 1-2 months, with the last big run until December before the next few years of sideways start again. But, yeah, plan is to wait for the last upside in this 4 cycle.

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Alphaville
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Re: Lending out Crypto or how to generate other income streams?

Post by Alphaville »

fireeu wrote:
Sun Mar 14, 2021 2:18 pm
Since I am 99% in crypto (Bitcoin and others)
🤯

...

i'd take the money and run, but everyone has different goals

...

i'd also add this is not the place for discussing $5k/mo.

this is for $5k/yr :lol:

(it's really about a post-consumer life)

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Alphaville
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Re: Lending out Crypto or how to generate other income streams?

Post by Alphaville »

So I guess for me, translating the question to an ERE perspective, it wouldn't be one of financial engineering, but rather "lifestyle design."

I.e. how do you turn that giant pile of 99% crypto into a web of goals/skills/redundancies/backups that can live outside the monetary system, not just in it, and reduce consumption and resource utilization rather than simply maintain it?

white belt
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Re: Lending out Crypto or how to generate other income streams?

Post by white belt »

fireeu wrote:
Sun Mar 14, 2021 2:18 pm
Now I am wondering: How do people generate their 3% income stream? It doesn't seem to hard with the latest central bank bonanza to earn around 10-12% on a boring ETF. Since I am 99% in crypto (Bitcoin and others), I wonder if anyone has experience lending out USDC for example (currently 10% on BlockFi).

I have to trust someone with my money to generate income, either a bank or a institution like BlockFi, but would be curious what other options there are to generate income off this amount of money!
Well I would say 99% Crypto allocation is not ideal if you’re looking to live off your assets for the rest of your life. Not only do you have the problem of face-ripping volatility, but you also have no diversification. If there is government interference (restrictions, outlaw, taxation, etc) or nefarious actor interference in BTC, then your net worth is going to effectively go to 0.

So you’ve made nearly 900% on BTC in 3 years. Congrats, those are lottery returns. They are better than nearly all professional managers will ever get in such a short time period. To say they are once in a lifetime returns would be an understatement. But those are all paper returns because of the volatility and risk inherent in crypto, so that’s why I’m saying you should diversify out of crypto (you don’t need to completely get rid of all crypto, but 5-10% is much more sensible of an allocation for a portfolio that you want to live off of). There are various strategies for building a portfolio that can preserve wealth over long periods (e.g. Chris Cole’s Dragon Portfolio). Also I would recommend doing some serious reading on risk management and portfolio construction.

Your ego and greed are likely your own worst enemy at this point. There have been many a trader who posted ridiculous returns with life-changing money and lost it all because they held on too long, felt they were infallible, wanted more money, etc.

bostonimproper
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Re: Lending out Crypto or how to generate other income streams?

Post by bostonimproper »

In the US, swapping coins is a taxable event. If you are going to swap out of BTC anyway, why not put money into more traditional investments rather than lending out USDC?

If you think BTC/USD will continue to go up >6%/year, you could consider instead taking a USD or Euro loan out from something like BlockFi using your BTC as collateral and use that instead to pay for living expenses. This is the asset-rich approach.

Gilberto de Piento
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Re: Lending out Crypto or how to generate other income streams?

Post by Gilberto de Piento »

Congratulations on your accomplishments. Incredible work!

I see parallels between your situation and an entrepreneur who built up a very successful business but never took out any money from it. If a competitor or something else comes along that makes the business stop earning money the value of the business goes to 0 and the entrepreneur is left with nothing.

As others have said, it seems to me you have too many eggs in one basket even though you seem to be great at investing. I'd be too worried about getting wiped out by something unforeseen as was mentioned by others. At the very least if you want to keep trading btc it seems prudent to put enough to permanently live off of in a basket of other investments that are unrelated to crypto like equities, gold, bonds, property so that a life changing amount of assets is locked in (barbell approach). I just don't think a variation on crypto is enough diversity but I suppose I probably would have told you to sell back when btc was $1000 so what do I know? :lol:
Last edited by Gilberto de Piento on Thu Mar 18, 2021 8:57 am, edited 1 time in total.

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Ego
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Re: Lending out Crypto or how to generate other income streams?

Post by Ego »

Well, as a German you live in one of the best places in the world for this problem. Whatever you do, make sure you hold it for one year or more.

https://nomoretax.eu/bitcoin-tax-haven-germany/
Germany: no tax if you hold Bitcoin for one year

As opposed to most developed countries, Germany doesn’t see cryptos as currencies, commodities, or stocks. Instead, Bitcoin and altcoins are considered private money. This distinction is important since private sales bring tax benefits in Germany.

According to rule 23 EStG, private sales that do not exceed 600 euros are tax exempted. But perhaps even more interesting is the fact that you pay no tax if you hold your Bitcoin, Litecoin, Ethereum, Ripple, or other altcoins, for a period of over one year. No matter how much you make selling your cryptocurrencies, you don’t pay tax on the capital gains if you’ve held them for over one year.
This gets much more complex if you mined, earned or bought the bitcoins outside of a KYC exchange.

Qazwer
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Re: Lending out Crypto or how to generate other income streams?

Post by Qazwer »

I think this might actually be a good forum to post this on given the question is actually one of long term risk which is what this board manages well. Where did you get max drawdown of 50%? Your max drawdown is 100% if in a single undiversified asset which you hope to monetize. This forum seems to be about resilience and webs of goals. This is extremely risky. What are your life goals? Can you reach them with what you have? I think you should start with your goals and then determine ways to reach them with what you currently have.

Lucky C
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Re: Lending out Crypto or how to generate other income streams?

Post by Lucky C »

fireeu wrote:
Sun Mar 14, 2021 4:10 pm
I am equipped mentally to deal with a 50% drop, which might come in 1-2 months, with the last big run until December before the next few years of sideways start again. But, yeah, plan is to wait for the last upside in this 4 cycle.
Sounds like a rock solid plan. Just short Bitcoin for the next 1-2 months since it is going to drop, then go long again until December since there's going to be a big run, then cash out for a few years. It is super convenient that unlike every other asset class, cryptocurrencies follow a very consistent and predictable pattern.

I assume you will get back into Crypto when it is starting its next 4 cycle? In that case you are just looking for income for a few short years, which is why you aren't thinking of holding stocks over that time? I would suggest besides crypto-based income, diversify with some bonds, some regular bank account savings, and some precious metals. There is a lot of talk now (at least in the US) about inflation looming and while that seems to be true, inflation is still low for the time being while assets/commodities have started to price in inflation expectations. So If you have half of your savings in stuff that may hold up vs. inflation (precious metals, real estate, inflation-protected bonds) and half that would hold up without inflation (cash, bonds) then your portfolio should be pretty stable over a few years. Definitely more stable and diversified than a crypto portfolio.

iopsi
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Re: Lending out Crypto or how to generate other income streams?

Post by iopsi »

You could either personally pick solid dividend stocks are just throw it all in something like VHYL (vanguard ftse all-world dividend) and get more or less 3% of annual dividends.

For 3.5 millions that would be 8k a month, minus the 26% tax that's still 6k more or less.

You are set whatever you do pretty much (even keeping on a bank account i would argue, unless you just waste all the money for yachts and shit) :shrug:



Or you could keep it all on BTC and wait for it to reach 10 trillions mcap (500k per btc) 8-)

trfie
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Re: Lending out Crypto or how to generate other income streams?

Post by trfie »

I don't understand, 5K/month from 3.5 million is only 1.7%?

If 99% net worth is in crypto, that is extremely risky? It doesn't make any sense for anyone to have that allocation?

Firstly, why wouldn't you just diversify into stocks, real estate, continue with some crypto, gold, some fiat currency, local CDs, etc? That would protect you from various market environments.

Next, why did you only look at BlockFi? There are a plethora of crypto lending companies. Obviously the reputation of the company is important, but I would also personally only go with collateralized loans. You haven't mentioned why you are looking into crypto lending among all the other options, nor your risk level, but if you are 99% crypto, then apparently risk level does not matter to you.

I don't quite agree with the suggestion for bogleheads forum, as they are very anti-crypto and are typically very uniform in thinking, which I do not believe is ideal to hand the kind of possible shifts that jacob talks about in the book. If you do post there, I would not mention that you made the money from crypto (in actuality it does not matter how you made the amount because you can sell anything for anything else).

But why did you even post this question if you are only looking for 1.7% return? Surely if you have read the book, blog, and been on the forum, you don't really need help to get 1.7%?
Last edited by trfie on Wed Mar 17, 2021 11:59 pm, edited 1 time in total.

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Ego
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Re: Lending out Crypto or how to generate other income streams?

Post by Ego »

I love freaks and am so glad @fireeu stopped by. It is interesting to see the exasperated reception when we have a real life HODLer visit. They walk the talk and say it would be "fine" if their stash dropped 70% (-$2.45M).

I bet this person is weighing the cost/benefit of trying to explain water to fish. In the same way many here mute themselves at holidays when the sharp-tongued relative asks indignantly, "You're 32 and retired but only spend seven thousand dollars a year!?"

In early 2017 about USD $50K in BTC is now worth $3.5M. All along they've been called crazy by the fish. And yet, here we are.

I for one hope this person continues to post here because it is healthy to peer into the mind of someone who thinks differently than me. I enjoy the challenge of resisting the temptation to project my goals onto them and to try to see the world from their perspective.

trfie
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Re: Lending out Crypto or how to generate other income streams?

Post by trfie »

trfie wrote:
Wed Mar 17, 2021 8:29 pm

Next, why did you only look at BlockFi? There are a plethora of crypto lending companies. Obviously the reputation of the company is important,...
To clarify, the reason I mention companies is because you have to give them your coins to lend out. What happens if BlockFi is hacked? Or worse yet, if there is an inside job? Is it insured against theft? If you do get into crypto lending, I would divide it among multiple reputable companies to reduce the risk of loss.

You also have to look at the stablecoins in which you are getting involved. Some of them are not really stable, or in other words, they appear stable but are subject to catastrophic losses because they are not designed properly.

Laura Ingalls
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Re: Lending out Crypto or how to generate other income streams?

Post by Laura Ingalls »

Ego you are right. What I find weird is not that the OP continues to HODLE but that a tax free way to the exit (some)is right there. I suspect it is at high risk to be legislated away.

I think it’s like monoculture farming. The OP wants to quit farming and rent out the land. Maybe that’s fine but maybe he should think about a small plot of something else (in this case other asset classes, different skills, an actual garden.)

We hold Bitcoin too and have about the same basis. Not as ballsy of a position though. Our little baby stake hasn’t exactly taken over the whole garden but it’s a legitimate crop.

giskard
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Re: Lending out Crypto or how to generate other income streams?

Post by giskard »

fireeu wrote:
Sun Mar 14, 2021 2:18 pm
I have to trust someone with my money to generate income, either a bank or a institution like BlockFi, but would be curious what other options there are to generate income off this amount of money!
Centralized options:

- BlockFi pays 6% on up to 2.5 BTC (it's only 3% for greater quantities). So with 2.5 BTC at 50k that is 7.5k / yr
- Clesius pays 6.2% (https://celsius.network/rates/)
- Unchained capital? Idk I'm not rich enough to use that
- HodlHodl - heard good things about this but I looked at the site and most loans are based in stable coins

Defi Options

- Curve btc LP - (https://curve.fi/bbtc/deposit). You get some yield for being a liquidity provider btwn various types of wrapped bitcoins on ethereum. A little complex but yields are very high and you are taking a lot of contract risk (https://blog.synthetix.io/btc-yield-farming-pool/).
- Be a liquidity provider for some other protocols. Lend wrapped BTC on compound, etc.

Converting options

If you are willing to convert your coins to stable coins (e.g. CUSD) you will get the best yield (8.6% on BlockFi, like 50% yield farming in DeFi land), but obvious downsides are that you create a taxable event, you are not exposed to bitcoin anymore and now you have 3rd party risk of the stable coin issuer.

Notes:

I do use BlockFi but I have less than 1 BTC in there. I am planning on putting some stable coins into curve.fi because I think they are one of the best most reliable projects and being a stable coin liquidity provider is less risky there imo.

Wrapping bitcoin to use in DeFi land seems risky to me because you are trusting the 3rd party doing the wrapping. Once I do some more research there I might feel OK with it.

fireeu
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Re: Lending out Crypto or how to generate other income streams?

Post by fireeu »

Thank you for all the responses! Just FYI again, I am not quite there yet. Lets say half-way. I still need the rest of the year play out. I talked to my wife and told her: "Look, worst case is, we trippled our money from three years ago, best case is, we can retire." And we agreed to play it all to the end and see where it takes us.

It helps us that money isn't really a concern. I think I realised early on that life exists out of family, friends, hobbies and other things. If money is allright, you are good in 10-15% of your life. The rest is not really money depended, so we don't want to put emphasis on it.
Ego wrote:
Wed Mar 17, 2021 10:22 pm
I love freaks and am so glad @fireeu stopped by. It is interesting to see the exasperated reception when we have a real life HODLer visit. They walk the talk and say it would be "fine" if their stash dropped 70% (-$2.45M).
Yeah, that's it. I guess in my age, people take money less seriously because we see that central banks can print a lot of it. If you invest in stocks, you maybe get 10%, but house prices more than doubled in the last 3 years where I live. So my bet was a few years ago that Bitcoin is here to stay, but I don't know where it will be in 5 years.

I have to say, I read the forum a lot in the past years and found it fascincating that Bitcoin wasn't hyped here. It shows me that the FIRE community is just another group-think people. Just a different bucket. Bitcoin is the first non-government created, global currency (maybe after gold and sivler?), which can put into storage at your home and traded without a central entity in an instant. I think that's the "downside" (if there is any): Once you removed yourself from this consumer societies, you also going to miss new trends, because when you consume less, you can't forsee how future consumer are valuing this new thing.

With Bitcoin and crypto in general, this is a whole new set of finance, a new world where the old world is slowly pouring more and more money into, and new consumers (18+ year olds) are joining instead of buying Gold etc. So it's both a generational shift and a technology shift at the same time. In addition, it's basically investing in StartUps on day 1. Which means you have lots more "boom and busts". Imagine investing in Facebook on day 1. This chart would have looked ridicilous and like a bubble as well.

After buying stocks for a while, I still didn't understand who buys it for me, where they are stored and what's behind the number on my computer screen. With Bitcoin, I have the safety of thousand of miners around the globe, and a ledger I can download and inspect. I don't know, it clicked.

I am aware that it might be a bit rigged, but if it does, this time its for my advantage (in comparison to stocks by hedge funds).

I guess I posted here because I seek "the extremes" in each part of my life to see what I can learn from them, and then create my own reality or narrative. So I invested around 5k over the last years to a certain website (RealVision) to read and get access to top investors, then I read a lot about FIRE (for free :)) to improve my spending and get inspired to fix more on my own etc.

Thanks for all the input. I definetely get out of 99% of Bitcoin by the end of the year, and have put a bit more thoughts on where to put the money:

Portfolio, equally weighted ( 6 positions, 16.67% each)
- USDC lending on BlockFi (currently 8.6%)
- USDC lending on Abra (currently 10%)

(these two positions alone are enough to live on)

- India ETF
- Energy ETF
- Gold
- Bitcoin


I did a lot of research and it seems Monsoon countries might be the big winner over the next 10 years (of course if the rest of the equation (weak Dollar etc) plays out). In addition, Governments around the world spend a lot on green energy, so why not profit from it. Gold and Bitcoin are just stables. I am going to wait for the Bitcoin price to drop from ATH after the end of the year and then by again a 16.67% portion of my portfolio once I think the price it right.

white belt
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Re: Lending out Crypto or how to generate other income streams?

Post by white belt »

fireeu wrote:
Fri Mar 19, 2021 4:30 am
I have to say, I read the forum a lot in the past years and found it fascincating that Bitcoin wasn't hyped here. It shows me that the FIRE community is just another group-think people. Just a different bucket. Bitcoin is the first non-government created, global currency (maybe after gold and sivler?), which can put into storage at your home and traded without a central entity in an instant. I think that's the "downside" (if there is any): Once you removed yourself from this consumer societies, you also going to miss new trends, because when you consume less, you can't forsee how future consumer are valuing this new thing.

With Bitcoin and crypto in general, this is a whole new set of finance, a new world where the old world is slowly pouring more and more money into, and new consumers (18+ year olds) are joining instead of buying Gold etc. So it's both a generational shift and a technology shift at the same time. In addition, it's basically investing in StartUps on day 1. Which means you have lots more "boom and busts". Imagine investing in Facebook on day 1. This chart would have looked ridicilous and like a bubble as well.

After buying stocks for a while, I still didn't understand who buys it for me, where they are stored and what's behind the number on my computer screen. With Bitcoin, I have the safety of thousand of miners around the globe, and a ledger I can download and inspect. I don't know, it clicked.
There have been multiple Bitcoin and crypto threads on the forums. This one is where most of the recent discussion on it takes place and dates back to 2016: viewtopic.php?f=3&t=7848

There is some enthusiasm for crypto on these forums and even a few Bitcoin maximalists like yourself. I actually believe there is a huge difference between these forums and traditional FIRE groups in terms of intellectual curiosity and lack of groupthink. There’s no 4% rule dogma on here (or BTC dogma for that matter), but plenty of threads of people trying to learn about new things and grow.

Have you read any of the books in Jacob’s startup curriculum for economics and finance? I think it might be helpful to give you more complete perspective and understanding of investing.

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