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Stablecoins instead of bonds in portfolio

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  1. #1

    Join Date
    Jul 2015
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    Stablecoins instead of bonds in portfolio

    Presumably, we all feel that stablecoins are riskier than the actual dollar (There was another thread here on geo where the risks of keeping savings in stablecoins were discussed). However, are they much riskier than investment grade bonds?

    With stablecoins such as USDC, GUSD, PAX, BUSD, DAI... paying about 8% on BlockFi and Celsius, I was thinking of having the bond component of my portfolio allocation carved into a few of these stablecoins across a few platforms.

    Benefits over Investment Grade Bonds:

    • Interest higher than bond yield
    • Correlation to equity portfolio lower offering better diversification
    • Lower Entry cost (not compared to bond fund but straight bonds)


    Risks:
    • Stablecoin peg to USD breaking down
    • Risk of the exchange (BlockFi or Celsius)


    I feel like the risk of the exchanges solvency is analogous to the risk of a specific corporate defaulting anyway, so I'm inclined to bite the bullet and allocate a large chunk to stable coins. In my might it can help my rebalancing in the crypto space. I rebalance bonds and equities pretty easily through the standard brokerages, with a large stable coin balance I could rebalance between more volatile cryptocurrencies and stablecoins much easier.

    Thoughts and concerns? I was thinking something like..

    5% Cash
    20% Crypto (BTC, ETH...)
    10% Stablecoin
    50% Equities
    5% Bonds

    For risk tolerance context, I'm in my early 30s.
    pin likes this.

  2. #2

    Join Date
    Jun 2018
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    I don't see any case for bonds in your portfolio in your 30s. I definitely wouldn't regard stablecoins as of remotely the same risk profile as investment grade bonds though lol. If you're happy to do 20pc crypto then it probably makes sense. Just ditch the bond element and reallocate.

    I'm clearly getting old (late 30s) as your risk appetite scares me though... I am myself trying to work out what to do with a lump sum that came out of another structured investment recently... I've been sitting in 3 months in cash trying to decide if I believe in equity valuations enough to pile in.


  3. #3

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    May 2021
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    I feel like the risk of the exchanges solvency is analogous to the risk of a specific corporate (with investment grade bonds) defaulting anyway
    Wow!! Thats quite bold and adventurous..

  4. #4

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    Hodlnaut pay 12.5% on stablecoins, they are licensed by the MAS and Fireblocks provide their security.

    Here's my selfless referral plug if you decide to go that route.

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  5. #5

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    That risk profile scares the bejesus out of me. Take advice and don’t take it from GeoExpat.

    traineeinvestor likes this.

  6. #6

    Join Date
    Oct 2010
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    I can't believe the original post is anything other than a joke. Who in the right mind would think of a cryptocurrency as being akin to a bond?


  7. #7

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    Quote Originally Posted by TheBrit:
    I can't believe the original post is anything other than a joke. Who in the right mind would think of a cryptocurrency as being akin to a bond?
    A lot of people (clearly). Whether they are right or wrong is another matter.

  8. #8

    Join Date
    Jul 2015
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    Quote Originally Posted by TheBrit:
    I can't believe the original post is anything other than a joke. Who in the right mind would think of a cryptocurrency as being akin to a bond?
    The analogue isn't cryptocurrency in general, but stablecoins. In my mind, these are redeemable 1 for 1 for a dollar provided the issuing entity or process is well collateralized,

    In the same way I would look at the issuing entity of a bond to see whether the cash flow or balance sheet would leave me feeling safe that the face value could be repaid at the maturity date.

    I really did mean it seriously. Obviously different stablecoins have different backing collateral anywhere from 1 for 1 to the dollar to "commercial paper" and "cash equivalents" at which point one would have to make the assessment on how robust that collateral is.

  9. #9

    Join Date
    Jul 2015
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    Quote Originally Posted by Peaky:
    I don't see any case for bonds in your portfolio in your 30s. I definitely wouldn't regard stablecoins as of remotely the same risk profile as investment grade bonds though lol. If you're happy to do 20pc crypto then it probably makes sense. Just ditch the bond element and reallocate.

    I'm clearly getting old (late 30s) as your risk appetite scares me though... I am myself trying to work out what to do with a lump sum that came out of another structured investment recently... I've been sitting in 3 months in cash trying to decide if I believe in equity valuations enough to pile in.

    FWIW this is a pretty strong deviation from my original allocation which was maybe 90% equity ETFs, 5% cash, then 5%crypto and it was a pretty slippery slope to include bonds and my current size of crypto

    Over time, that crypto allocation has ballooned and I haven't rebalanced away.

    Additionally, I was offered very cheap secured financing for bonds at 0.06% a year, so I purchased a basket of investment grade bonds at about 70% LTV which is giving me a return on invested cash of about 6%. I'm somewhat of a subscriber to the belief that future equity returns will be lower than historical, so 6% doesn't seem too bad relative to the expectations of 4-6% some places are putting out for large cap equities. Granted, equity market doomsayers have been around for years.

    That being said, 9% on stablecoins with no leverage or risk of margin call seems to be worth a consideration relative to that levered bond portfolio.

    Currently I'm about:
    12% Cash
    10% Hong Kong Equity
    25% US Equity
    30% IG Corporate Bonds
    15% EM Local Currency Bonds
    8% Crypto.

    This is all net at about 1.4x leverage. If I didn't have the cheap leverage there would probably be no fixed income in this portfolio.
    Last edited by tck; 04-11-2021 at 06:17 PM.

  10. #10

    Join Date
    Feb 2019
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    Big believer in the various flavours of crypto yield trade (the locked USD value type rather than the 'risky' type).

    You don't really need to take much counterparty risk either, just buy spot bitcoin and dump it in your wallet, the short futures on the CME or other via your Interactive Brokers.

    Bloomberg did a piece on this trade recently, 15% annualised is easily achieveable right now: https://www.google.com/amp/s/www.blo...ack-on-for-now


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