Inflation is high. Every month, cash sitting in your bank account purchases fewer and fewer goods and covers less and less cost of living if an emergency happens to your family. We kept six months of expenses in an emergency bank account in the past. Now, macro trends forced us away from that strategy, requiring us to accept more risk to offset inflationary forces.
If you have listened to Dave Ramsey or any other financial “gurus” out there, you know that most recommend having a robust emergency fund. In fact, this is usually one of the few things that all financial experts can agree upon. We do too. However, suppose you keep that money in a “high” interest savings account, earning .40 APY. In that case, you are losing between 4-6% of your purchasing power every year.
To offset this trend, we split our emergency fund into two portions.
1. The first is two months of expenses in cash in our bank account for immediate liquidity.
2. The second is two to four months of expenses in $USDC on Voyager, a Canadian crypto exchange. $USDC on Voyager pays out 9% annually.
Other services will pay returns for stablecoin deposits on their platforms. These services include Blockfi, Celsius, and Binance. We like Voyager, but the great thing about cryptocurrency is that many options are out there.
1. With 9% annual growth and inflation at 6.2%, we earn a 2.8% real return in the U.S. That return means that our purchasing power grows over time and offsets both monetary inflation and some of our lifestyle inflation.
2. $USD and $USDC can be swapped without any fees. Feeless swapping means that you can seamlessly move between the two and move your earnings back into your bank whenever you want. $USD in Voyager is FDIC insured.
3. If you are new to cryptocurrency, stablecoins can be an excellent way to learn. Plus, you get a return.
1. This strategy has increased risk vs. a regular bank account. $USDC on Voyager is not FDIC insured. As stated before, the good news is that $USD is FDIC insured. To offset the $USDC risk, we watch the markets and swap from $USDC to $USD whenever we want to de-risk and regain FDIC insurance by holding $USD.
2. The regulatory environment is uncertain. Over time, stablecoin regulation may reduce the returns on $USDC. The returns exist for now, so we keep a close eye on the environment and earn money while we can.
3. Rates are variable. The account is not guaranteed to continue to pay out 9%. We keep an eye on the relatively stable return rates for any changes.
If this strategy makes sense for your financial situation, consider using it to offset monetary and lifestyle inflation. Whereas most cryptocurrencies are speculative assets, you can use stablecoins as liquidity tools. You can learn more about DeFi strategies from our other articles.
You can sign up for Voyager here. Full disclosure, if you use this link and purchase $100 of cryptocurrency, you get $25 in BTC, and so do we. Voyager does not sponsor us; we just like the product. We never recommend a product we do not use or an investment we do not make. Rewards for both of us is an easy way for you to get $25 in Bitcoin to help you learn how to use the exchange.
If you are not interested, still consider holding an emergency fund in the bank to increase your resiliency. Keep up the excellent work.
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I am not a financial advisor. This article is for educational purposes only. You should do your own independent research before making any investment decisions.