How I Sleep At Night - Staking and Compound Gains

Everybody knows the cliches, 'don't invest more than you can afford to lose', 'always DCA' and 'crypto is a long term investment'. And sticking to these should serve you well, but I'd just like to add another viewpoint that keeps me calm in unsettled markets.

Pretty soon, all of my Crypto, Bitcoin included will be earning a yield. Regardless of fluctuating prices the yield keeps coming in and is reinvested to benefit from the effect of compounding.

For example: I buy £1000 of coin X at £1 each, the yield is 7%. Using the rule of 72, (72/7 = 10.28) in just over ten years the principal has doubled, so I now have 2000 coins. That's a good return even if the price doesn't move at all (increased compounding frequency can shave some time off this figure).

Compared to a bank savings account, if you cashed in your yield you would be getting £70pa. But what if the price drops by 50%? Your cashed out yield is worth £35. Still a 3.5% return on investment. Conversely, if the price doubles you are effectively getting 14% on your investment.

When you add in a DCA approach and fluctuating prices the returns accelerate. If you spend the same £1000 after a 50% drop you now have 3000 coins. Once the coin returns to £1 your return is now 10.5%.

I know there is lots of Lambo talk, but my approach is to never sell. I'll buy a Lambo when I can afford it out of the yield.

It can be stressful and euphoric watching the markets go up, down or crab. But if you know that all the time your capital is earning and compounding makes the journey far easier. Especially if you are indeed treating it like non-sexy long term savings.

I also think diversification is key. You should also have a pension, index tracker and emergency cash (which you can now get a good return on via Nexo etc) as well as a diversification in coins.

With the Crypto cards on offer you can also earn as you spend, effectively increasing your portfolio.

I sincerely believe that Crypto has passed the point of no return and that the probability of all of it going to zero is sub 1%.

So relax, zoom out, DCA whatever you can afford, stake, and let compounding work its magic. Your future self will thank you.