How To Earn 8% On Your Money With USDC

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this is matthew crowder from trader


and today i want to talk about how to

earn eight percent

on your money using usdc which is a

stable coin

that's based on the us dollar if you're

interested in learning how to make money

in both bull and bear markets

or you just want to see what i'm trading

or investing in be sure to hit that

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so this is a very interesting

opportunity i think that

the fact that you can earn eight percent

in this environment is quite

impressive and so we're going to discuss

how it's done and the risks

associated with it eight percent is

impressive because if you look up high


savings accounts you're lucky to find

anything that's even close to one

percent here's the marcus account from

goldman sachs

which is at about point eight percent


savings accounts pay much less than this

much closer to zero

so it took it caught my attention when i

was looking at the block fi

website and again i'm not associated

with any of these companies i'm not


investment advice i'm not pushing this

but i am interested

in the space of cryptocurrency

especially bitcoin

and now i've been begun to investigate

stable coins like usdc

basically what you can do is you can

open up an account if you're a us

uh citizen and i believe it's available

in most

uh most of the 50 states you open up an


you wire in some us dollars

you convert them to usdc which is a usd


uh it's a us dollar stablecoin which

means that it's paid to the us dollar

and will will not go up in value will

not go down in value it's kind of a

cryptocurrency version

of the us dollar called a stable coin

and see basically wire in us dollars to

block fi convert it to usdc

and they will pay you an annual interest

rate of 8.6

now that's amazing as i said compared to

the 0.8 percent that you can get in

the best of savings accounts so the

first thing that occurs to me is why is

this yield so high i'm always very

um i'm always very cautious when i see

high dividend yield stocks they're

usually pricing in a dividend

cut and so in this case i was fairly

skeptical how in the world can blockfy

afford to pay you this 8.6

a year if they're holding your u.s

dollars the most they can earn is maybe

one percent if they're lucky

maybe they're subsidizing this a little

bit with venture capital

funding is kind of a customer

acquisition strategy

but how do they actually do it and i

think i figured out how they are able

to offer such a high uh a high yield and

i think it's fairly safe as we'll see

so this is a usdc uh offered by circle

it's the uh the stable coin that's

backed by us dollars if you look at the

the website here

you can see they have an audit where

they show you that it's it's backed by

you can click on one of these reports

here where it says trust and


and it it's audited by grant thornton


supposedly is backed by us dollars this

is one of the one of the risks it looks

fairly safe to me so how is

how is blockfy able to offer this

because if this is a fake if this is a

ponzi scheme

scheme or or a fake yield that's going

to go away

we should we should know about it and we

should know about the risks associated

and so we really need to understand how

is block of block fi

able to have the cash flow to pay you

8.6 because if they can do it then it's


a fairly safe investment well this is

how i think they are funding it

basically there's a huge demand now

by institutional investors for usdc

because of this what's called a cash and

carry trade that they can do

so what they basically do is they will

borrow a big institutional investor who

has tens of millions of dollars

under management uh or at least millions

of dollars under management will borrow


from block fi we're going to assume they

borrow it at 8.6 percent

maybe there's there's some interest rate

spread here that block fi

is capturing in fact i'm sure they are

maybe they're capturing a half a

percentage or a percentage

we're just gonna ignore that for now to

make it really uh easy to do the

calculation but basically

big institutional investor borrows usdc

from block fi

and then block fi off obviously gets it

from you or me

who deposit us dollars convert it to


block fi then lends it out to an

institutional investor

that institutional investor takes it to

an exchange like coinbase or gemini or

some institutional exchange

and uses it to buy bitcoin now these

numbers are approximate but they'll

basically show you

what's happening so let's say bitcoin is

trading at 11

450 that's roughly where it's trading

been trading the last couple days

so they use usdc they buy bitcoin they

buy the actual bitcoin

and then they sell futures against it

now i'm gonna assume they go three

months out they may do this every

month and roll but basically they're

going to be

in a cash and carry position like this

you're going to be long the underlying

you're going to be long

bitcoin and then you're going to sell

futures against it as a hedge

so if bitcoin falls a lot you're

protected by your futures hedge

if bitcoin goes up a lot you'll make

money on the bitcoin side of things

you'll lose money

on the short future side of things but

it's basically a hedge position

that allows you to lock in a gain and

really anyone can do this you could do

it in your account as well

i'm not doing it because i expect

bitcoin to go to a hundred thousand so i

don't want to

give away the upside but this might make

sense for a big institutional investor

so basically

they buy bitcoin at 11 450

they sell the futures at eleven thousand

nine seven hundred and ninety and they

capture this spread which is three

hundred and forty

dollars per futures contract per bitcoin

uh now these futures contracts may be


uh i believe there's five uh five


in each of these futures contracts at

the cme uh we can look up the


but i'm just gonna really simplify this

for the purposes so you might actually

if you're an institutional investor you

might have to buy five bitcoins here

and then sell one bitcoin futures so

either way this institutional invest

investor will make money because either

these two prices need to converge by

expiration the 11

thousand uh 450 and 11


so they're basically either the futures

will fall down to the bitcoin cash price

or the cash price will rise up to the

futures price of 11

790 or they'll meet somewhere in the

middle that's what normally happens

and what this is as we said it's a hedge

position it's basically impossible to

lose money on it there is some

counterparty risk which we'll

talk about there's some exchange risk

counterparty risk with

the exchange itself and you actually

have to be careful where you store your

bitcoin they could get hacked etc so

there are some sort of extrinsic risks

but the basic position is hedged in

terms of price

and it pays you a positive carry which

is 340

dollars which you basically lock in when

you do cash

and carry now you have to put up eleven

thousand four hundred fifty dollars to

do this trade

you um in practice you might do this


the backed futures where you actually

deposit the

uh your bitcoin as collateral i'm really


things here but basically you're

capturing 340 points

you put up 11 450 dollars you do that

division and you're basically making two

points 2.97

over three months between now which is


up to november now if we annualize that

that's about 11.88 percent over 12

months that's the annual

yield that this investor is doing so

when the futures expires they get close

to expiration

the investor will just roll them he'll

enter another one month or three months

or six months

out and be able to um sort of continue

to do this

as such he's making 11.88 over 12 months

he pays the 8.6 back to block five

and basically pockets the difference

between 11.88

and 8.6 making

basically 3.28 from this arbitrage sort

of out of

out of thin air because he's basically

making more money

on the trade than it costs him to borrow

the usdc so this suggests that as long

as this cash and carry

continues to work that

block fight will be able to continue to

pay this 8.6

normally cash and carry in the futures

markets if you're doing it with with oil

or gold

or something like that you can make a

little bit maybe you make one or two

percent a year

but it's very very low this is a new

market here it's it's amazing for

institutional investors to be able to

lock in

a 10 11 or 12 percent

cash and carry yield over 12 months so

that suggests

eventually these these yields will

compress but for now

as long as the spread remains positive

and these institutional investors can


more money than it costs them make a

higher percentage yield than it costs

them to borrow

usdc from blockfy this will continue

and this 8.6 yield is safe

for yield for for retail investors like

you and me so let's discuss what the

what the risks are of a trade like this

as i said there are counterparty risks

you need to trust

circle the company that usdc is always

backed by real u.s dollars

if they're lying about this there could

be a crisis of confidence

and the value of your usdc within block

five could plummet so you'll still be

paid interest

with them but what happens if the the

the parity breaks what happens if one


is no longer equal to one us dollar

maybe you get paid back 80 cents or 90

cents on the dollar

that would obviously be devastating on

the other hand if you've been doing this

for a couple years and you're making 8.6

percent for a few years

you've got a little bit of cushion there

and you're obviously doing much better

than you are leaving your money in a

savings account

that the fed is now targeting inflation

rates of two percent or

or higher and so if you're only earning

point eight percent

you're actually losing um losing money

every year

on an inflation adjusted basis

so you need to trust that usdc continues

to be fully collateralized

collateralized and backed by real us


you need to trust that blockfi does not

get hacked and lose your usdc

they're not insured they do not offer

they do not offer fdic or sipc

insurance obviously

on your us dollars i believe those would

be covered but usdc

is obviously not insured by fdic or sipc

which are government

insurance programs and if you google

this you'll see again that it's not

it's not backed i do believe they have

some insurance

in case the in case block fi and their

cold storage gets hacked but if they do

get hacked or maybe wherever they're


they're using custody um i seem to

remember they're doing their custody and

storage at gemini that may or may not be

correct but wherever they're storing

their cryptocurrencies

in cold storage uh that that storage

facility is probably insured by an

insurance company

and so you need to trust that whoever is


uh behind the insurance it will will

make good if there is a hack and they're

usually limits to this insurance

now i personally prefer to hold rather

than doing this

these are new um these are new contracts

this is sort of a new

a new area of finance i believe it's

probably safe

there are these counterparty risks and

so i prefer

instead if i'm building my portfolio i

rather hold just some cash

in a high yield savings account i know

goldman sachs

is very safe it's covered by fdic

insurance and so i prefer to to to do

sort of a balanced portfolio obviously i

hold other things including

stocks and real estate um but i would


rather than doing this eight percent

usdc trade

simply because i'm so bullish on bitcoin

i think it's going in the hundreds of

thousands if not the millions

in the few in the next few years that i

prefer to hold a mixture of cash which

is basically going to lose me

money over the next couple years because

it's not paying

up to the rate of inflation and then i

hold real bitcoin

which i buy coinbase or coinbase pro and

then hold on hardware wallets

it doesn't really matter if my cash

loses two or three percent

a year as long as my bitcoin

is going up 2x 5x 10x or 100x so i


i still prefer us dollars and bitcoin

i can hold the bitcoin myself i know i'm

not going to get hacked

i know how to hide it on a hardware

wallet and how to store it

but for those who want to experiment

with this maybe with a little bit of


i think this is a fairly safe way to


eight to nine percent on your us dollars

in which you convert to usdc

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comments in the comment section below

especially any

any experiences you've had with blockfy

whom i've never used

or any experiences you've had with

stable coins or any of these coins that


these fairly high interest rates thanks

a lot for listening and i'll see you in

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