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20th November 2022 > > Crypto staking part 1.

Updated: Nov 22, 2022

tl;dr

Let’s start our staking journey with a broad overview of the investment world.


Market Snap








Market Wrap

I think six “unch” in one day is now the record suggesting markets are feeling happy with themselves (note that all the markets above apart from UST trade seven days a week).


The only change comes from the leveraged children who are getting excited again on the short side.


Curious Cryptos’ Commentary – Crypto staking part 1

There is a lot of noise and confusion about staking cryptos. I think you must always bear in mind two key points.


There are plenty of opportunities to increase your crypto stash by staking.


There are plenty of other opportunities to lose your entire crypto stash by staking.


Over the course of the next week, I hope that we can all be better prepared to make the most of the former and to avoid the latter.


However much I adore the concept of decentralisation - the vision that one can be the master of one’s own destiny (at least in a financial sense) - this apparent (to me at least) utopia has as much a dark underbelly as does TradFi.


Scammers, scoundrels, those of low morals and even lower values, abound in all aspects of our lives. The crypto world is not (yet) immune to these criminals.


If you are involved in cryptos you will know of them, and you will detest their very existence. But the depths of your disdain will be dug much deeper once you start learning the art of staking, and you learn how these feral scumbags feed off naivety and greed.


But it isn’t all bad and, if you are committed to the crypto revolution, then there are many safe ways to build on your investment.


Shall we dive in?

...


It will be useful to set out a few parameters before we start.


The word “staking” has a very broad definition in cryptos. We will try to explore all aspects currently available to us. The wonder of cryptos is that though I start this week with a reasonably clear view of the opportunities available, it is most likely that that universe has grown already.


The pace of innovation and development in cryptos never ceases to astound me.


But back to basics.


The core concept behind staking is to earn what has become known as “passive income”.

This is similar in some respects – but by no means all - to earning interest on your bank account, which has not happened to anyone in a very long while but is starting to become a thing once again.


In the world of investments that one can potentially make there are broad categories one can define, and it can be useful to understand these categories when considering one’s own investment strategy.


Gold for instance has long been seen as a source of value, a way of maintaining an equilibrium of wealth.


There are approximately 200,000 tonnes of gold that has been mined with maybe another 25-50% yet to be unearthed. Gold has a very minor part to play in industry, but a major role in jewellery. Other than that, its greatest use has been for Central Banks to store in vaults to give themselves credibility, though that specific lesson in economics was one that Gordon Brown, an ex-Chancellor of the Exchequer, famously skipped when he was at school.


Why does holding gold give credibility to Central Banks?


I don’t know.


It pays no income - in fact you must pay storage costs. It is inefficient when used to bargain for goods or services. It easily attracts the attention of bandits (you can see where I am going with this now). Mining for gold has never been described as environmentally friendly.


But the human species has had an enduring and, I believe, never-ending fascination with gold.

After all is said and done, when the zombie apocalypse descends upon us, do you want a collection of gold coins, or a length of lead piping in your bag?


I know which I prefer.


There are other investment opportunities that pay an income.


Government bonds are the best example of this category. If you buy 10-year UST (US government bonds) you will get nearly 4% income every year and you are absolutely guaranteed to get your money back when the bond matures.


You could buy 10-year BTPS (Italian government bonds) for a remarkably similar yield, but of course you risk a remarkably unsimilar outcome.


Even your high street bank in the UK – with a guaranteed stop-loss at £85k from the Government whose debt after last week’s budget will only ever get higher despite the insistence of Treasury mandarins to the contrary – is now paying something back to you for supporting its fractionalised reserve business model.


After government debt the next biggest investment opportunity is corporate debt, though this is not something that is apparent to most people. Perhaps that is one of the reasons I was lucky enough to make a slightly stuttering career out of it.


Apart from the period of madness engendered by QE (quantitative easing) – a policy whose sole objective was to make the rich richer and the poor poorer – corporate bonds mostly pay a yield that accurately reflects the risks. It is probably the only financial market that has ever come close to that ideal.


Again, another one of those reasons I was attracted to debt capital markets.


When we get to stock and shares, it’s another whole ball game.


Stocks and shares are things that everyone is so familiar with, but stocks account for such a small portion of the financial base.


Why does commentary about stocks dominate the popular financial press?


I don’t know.


You can buy shares that never pay a dividend. You can buy shares that throw cash at shareholders at every available opportunity. You can buy shares that crash and burn – I have certainly owned some of them. You can buy shares that ******* fly – and I have certainly owned some of them.


But I still do not understand why the financial press is so focused on this risker level of corporate financing.


Can anyone enlighten me?


That very short – and frankly very compromised – explanation of the financial world as I see it sets the base for our journey this week into earning income on our crypto stash.

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