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Why can't I hold the coins?

We all know that Bitcoin and ETH will rise, but why can’t we store coins for a long time? The answer is simple: because you are short of money or you have money that you need to use urgently, there is no way. Whether it is rich or poor, there are times when turnover is needed. At this time, there is no way to sell coins. Let's look back at the market.

From December 1st to December 11th, 2020, Bitcoin fell from US$19,888 (high on December 1st) to a low of US$17,570 on December 11th, and it has been fluctuating and falling for about 10 days.

The arguments at that time were as follows:

• Christmas is coming in the West, and many people think that the market will not start in the short term

• The market is falling, and it happens to be the previous high of Bitcoin ($19,500) in 2018, and it is difficult to break through here.

Therefore, there are not a few people who choose to run all short positions.

This emptiness empties the opportunity for a small bull market to double. Later, everyone saw the rise of mainstream currencies such as Bitcoin and Ethereum.

For example, before Christmas in 2020, you want to collect coins, but you need to buy gifts for your girlfriend during the holidays. If you have no money, you should first deposit them on the lending platform, and then borrow some stable coins to spend, and your income next month Come over and fill it up, so that the coins in hand will not be less, but there will be the use of working capital-of course, here is a joke: Is this how institutions operate? You need money for Christmas and don’t sell coins. Use DeFi to borrow money first. Anyway, the interest rate is low. Therefore, in 2020 Christmas, Bitcoin will not have the expected callback.

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Basic usage of DeFi lending

In 2020, Liquidity Mining was initiated by Compound, which essentially subsidized the interest on loans with platform currency. The difference from traditional finance is that depositing assets also has interest. Because encrypted assets have two attributes of currency and assets (the following directly uses Bitcoin as an example).

You have a house (purchased in full), the value of which is assuming that the listed sales price on the market is 10 million, and now you need money to do business, mortgage it to the bank, and then withdraw 5 million, which is the most you can withdraw under traditional circumstances. Moreover, the bank’s valuation of your assets is different from the market. If you sell your house for 10 million, the bank’s relevant appraisal agency will only value your house at 7-8 million. When you take it out, it will be 65%, which is about 5 million. Then pay it back every month.

The house you deposit will not have interest for you, but the money you borrow will have interest.

For DeFi lending, you earn interest when you deposit BTC, and you earn interest when you lend it out. The difference in interest can be considered as the profit of the platform.

The picture above is from Compound (afternoon of January 18, 2021). You can see that if you deposit Bitcoin, the annualized return is 0.2%, and if you lend it out, the annualized return is 3.98%. Different platforms and currencies provide different loan collaterals. It ranges from 60-80%, which means that if you deposit 1 million, you can withdraw 600,000-800,000.

This loan interest is indeed very low, and the interest on borrowed assets can offset (or partially offset) the interest on lent assets. Of course, there are platform currency rewards for borrowing, which are often greater than the interest you need to pay for borrowing, that is to say, borrowing money and earning money-this is not the most critical part for us. The most critical part is that through such DeFi lending, I can indeed have more low-cost liquidity on hand.

You can compare multiple lending platforms, such as MakerDao, Lendhub on the Huobi ecological chain HECO, lending platforms on the Binance Smart Chain, etc., for lending operations. Of course, gas fees also need to be considered for different platforms and chains.

If it is a short-term turnover, or a stable profit opportunity for short-term mining, borrowing here does not require too much interest, I will mine for a week, and then just loan out part of the funds for operations. For example, if I deposit 1 bitcoin in Compound, I need to participate in mining now. For example, if there is a DAI-USDC pool with very high returns, then I will loan out stable coins to participate in mining. After three days or three months of mining, just pay back the money. Under normal circumstances, in order to prevent principal liquidation caused by market fluctuations, the loan amount can be in the range of 1/3 to 1/2 of the total deposited funds. This method of operation is relatively safe in the short term.

The strategy of borrowing and depositing coins has the following factors:

• The market fluctuations are not very large, such as price fluctuations within 30-50%;

• The loaned money can be used efficiently. Need to be stable, including a better pool, or investment;

• The loan period is not very long;

• You really want to hold one or several encrypted assets for a long time, but you need capital turnover;

• Don't pay too much attention to the platform currency income of borrowing and mining, return to the essence of lending, mining income is of course good, but don't pay too much attention.

Therefore, for friends who want to collect coins but need money to participate in new projects and new pools, they can use the DeFi loan method to increase the utilization rate of assets and increase the liquidity on hand.