Why Yield On Bitcoin Is Unnecessary?

How many of your customers have shown interest in generating revenue without actively doing anything? Permit me to rephrase that: can you name me one of your customers who hasn't mentioned that they want passive income?

The pursuit of higher yields has been and will continue to be one of the most challenging tasks that an adviser must confront from the perspective of the financial world.

I want to cast doubt on the idea that customers will want some kind of return or passive income if bitcoin (BTC) serves as their unit of account. Why would you take a chance on a compound annual growth rate (CAGR) in the upper double digits when you might get 6% or even 10% instead?

Not only does the pursuit of yields in the cryptocurrency industry carry a significant level of risk, but the concept of pursuing a return on bitcoin makes no basic sense since just owning it should be sufficient.

Therefore, before we start looking for a return on bitcoin, let's take a look at some of the dangers associated with the yields of cryptocurrencies and then explore why bitcoin is an excellent currency to retain owing to the deflationary characteristics it has.

Yield on bitcoin isn’t worth the risk

Recent occurrences involving lenders practicing centralized financing, or CeFi for short, have made it abundantly evident that the potential returns are not worth the associated risk. The failures of Celsius Network and Voyager Digital serve as important reminders that it is preferable to steer clear of an investment opportunity if it is unclear where the return on investment will be generated. It became common practice to speculate and take crazy risks, and yield farmers who had left their cryptocurrency on such sites were left holding the bag as a result.

In an attempt to bring swarms of new users to its network, Celsius made many bold claims, including yields as high as 18% that would be achieved quickly and easily. They lowered the prices and risked a loss in order to grow their customer base rapidly, therefore they subsidized the yields. The yields were artificial and analogous to a Ponzi scheme since government subsidies artificially inflated them.

Voyager had also been successful in attracting a large number of yield-hungry investors, but the company's choices about to whom it should lend the money were bad. Three Arrows Capital, which was the company's largest loan client, has a significant exposure to the LUNA cryptocurrency. The collapse of LUNA set off a domino effect that ultimately resulted in the insolvency of Three Arrows and, as a direct consequence of that, Voyager.

The vast majority of the yields in the sector were from around 6% to 9%, despite the fact that in certain instances across the industry, the yields were touted as being in the high double digits. This raises the question: Why would someone take a risk on a rare asset that has been increasing at a rate of 53% annually over the last five years for a pitiful return in the single digits?

Yield on bitcoin is unnecessary

The concept of yield originates from an ever-expanding money supply; the "yield" that you need is to balance off the units that have been freshly minted. The quantity of dollars that are now in circulation has dramatically expanded in recent years and shows no indications of slowing down, which is the primary reason for our preoccupation with yield.

Bitcoin does not need a dividend since there is no need to compensate for an increase in the amount of money in circulation. On the other hand, Bitcoin has a negative inflation rate and its supply is restricted at 21 million units, in contrast to dollars, which have a positive inflation rate and may be created in an infinite quantity.

However, if you have a rare item, you do not need to find yield in order to stay up with others. A good illustration of this is the price of the typical house in the United States, which dropped from 24.5 bitcoin in 2018 to 20 bitcoin in the present day. If we had saved in dollars, we would need thirty percent more money to make the identical purchase in 2019 as we did in 2018.

To put it another way, merely having bitcoin would have resulted in a gain in your buying power over the course of time, in contrast to holding dollars, which would have resulted in a decrease in your purchasing power over the same time period.

The value of money that cannot be raised through time tends to be more stable. If the value of the money is maintained, there is no need for yield since just retaining the money is sufficient. The act of holding a currency constitutes savings. Because lending out a currency exposes it to risk, the lender is entitled to a return or yield on the currency.

Bitcoin makes deflation possible, which is a desirable economic outcome since it encourages people to save. The value of savings is reduced due to inflation, which is a negative economic effect. Increasing the number of dollars leads to inflation and increases debt and speculation, both of which almost never end up being beneficial. You should read "The Price of Tomorrow," an important book written by Jeff Both, if you need a refresher on the reasons why this is the case. This book will provide a rebuttal to the arguments of those who maintain that inflation is essential to the successful operation of any economy. The next item on every adviser's reading list should be this one.

Bitcoin enables users to save aside monies ("hodl") in order to grow their buying power and then invest those funds only when it makes financial sense to do so. Bitcoin may seem to be dangerous, but in reality, investors are trading short-term volatility for long-term stability.

Bitcoin may be kept as a hedge against the unpredictability of the future. In contrast to dollars, Bitcoin may be successfully preserved thanks to the certainty that the laws of the system will be protected. These guidelines include the fixed production limit of 21 million bitcoins and the decentralized nature of the cryptocurrency. The so-called "Block Size Wars" are a fantastic illustration of regulations being upheld.

Those who save in bitcoin don't need yield since the rules governing the currency and the historical precedent it has established show that this is the case. As a result, customers may profit from living within their means so that they can save money for bitcoin.

That's all for today, see ya tomorrow! If you want more, be sure to follow our Twitter (@croxroadnews)

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.