At PolyCub, we are currently able to earn 56% returns on the pHBD-USDC stable coin pair. Over time, this return is expected to decline to around 30%. When we compare the risk we take with the potential return, we see that this is an excellent value proposition.
The problem is that I don't want to exchange any of my cryptocurrencies with stable coins. Because, compared to historical averages, crypto prices are below the level they should be. The regression models I created based on historical data show that the "reasonable" price of Ethereum is about 4k USD and the reasonable price of Bitcoin is about 50k USD. Hive, SPS, and Leo are also undervalued as there is a high correlation between cryptocurrencies.
On the other hand, my portfolio has lost approximately 45% of its value compared to the beginning of the year. In fact, during yesterday's sales wave, this depreciation exceeded 50%. After the brilliant performance last year, this year's depreciation actually caused me some stress. If half of my portfolio consisted of stable coins and the other half would consist of Ethereum and Bitcoin, my portfolio would have lost only 9% since the beginning of the year.
Last year, the value of my portfolio increased 15 times as Hive's price made 15x. (Two-thirds of my portfolio consisted of Hive ecosystem assets). This year, since Hive has lost 40% of its value since the beginning of the year, my portfolio has also been affected. Hive was good when it increased 15 times last year, this year it's also fine when it's depreciating, but I can't help but wonder if I could have done better.
When we look at the issue from a theoretical perspective, we see that it is related to price volatility. The prices of assets with high price volatility increase and decrease more. Bitcoin, the coin with the lowest price volatility after stable coins in the crypto market, is followed by Ethereum. Bitcoin, Ethereum, Tether, and BNB's yearly price volatility is 0.74, 0.97, 0.10, and 1.02, respectively. Hive's price volatility is 1.67. Bitcoin, Ethereum, BNB, Tron, Litecoin, and FTX are coins with the lowest price volatility. You can check out the price volatility of major cryptocurrencies here.
Of course, price volatility is just one of the factors that should be examined when evaluating a financial asset. Still, I think it's worth paying attention to. As can be seen from the examples above, the high market cap is a factor that reduces volatility. Also, of course, ample liquidity and high HODLer interest also reduce volatility.
Leverage is easier on assets with low volatility, and those who carry an asset in their portfolio using leverage cause its price to increase. Although leverage has the opposite effect in times of panic, we can still say that it has a positive effect.
Bitcoin lost 30% in 24 hours on May 19, 2021. In the panic that occurred, altcoins were faced with depreciation ranging from 40% to 50%. I remember well that day, nobody expected such a decline at that time. Although more than half of the losses were reversed on the same day, almost all of the leveraged positions had evaporated.
What happened on May 19, 2021, is one of the countless examples that show us how dangerous it is to use leverage in the crypto world. This example also shows that the leverage coefficient to be used should be a maximum of two. If I used 2x leverage, I could carry my current portfolio with half of the money I have, and earn returns on stable coins with the remaining half. Even using 1.5x leverage could have released a third of my liquidity.
While making all these calculations yesterday morning, the length of the red candles on the charts began to grow. Bitcoin price dropped below USD 40k, then below USD 39k. In fact, at that moment, I thought about converting some of my coins to stable coins. However, thinking that this would mean taking a step back, I gave up on this attempt. With high volume purchases Bitcoin price rose above 40k again.
Yesterday I almost sold half of my portfolio to the whales for cheap. The importance of mental resiliency is once again revealed. Crypto investing takes courage and determination.
Attempts to fall under the upward trend continued yesterday. I couldn't count how many times this was. I can't say that it won't happen again. It seems that whales want to buy as many coins as possible at low prices while scaring off individual investors.
Although the prices formed caused me to postpone my plans to use leverage, I did not put the issue completely on the shelf. Typical leverage products are not suitable for holding long positions for a long time as they are designed to be used during trading. It is more convenient to open a leveraged position by collateralizing the coins owned and taking a loan. Alpaca Finance, a yield farming application, provides the opportunity to use leverage when investing in liquidity pools. Using 1.5x leverage on Alpaca Finance, I can create some liquidity to invest in the pHBD-USDC stable coin pair. I will start with a small amount. Test and learn...
Thank you for reading.
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