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Cryptocurrency and DeFi use cases: The crypto-curious millennial
Millennials are becoming an ever-growing force in the world of finance, demonstrating clear cryptocurrency use cases. Today, those born in the 1980s and 1990s are working professionals, starting their own families and making key financial decisions that will affect their lives for years to come. It is, therefore, incredibly important for millennials today to take full control of their financial wellbeing - and cryptocurrency can be a way to do this.
According to a recent study by Gemini crypto exchange, some 63% of US adults identify themselves as “crypto-curious”, as it’s becoming impossible to ignore this rapidly growing space. Meanwhile, millennials already account for some 74% of all cryptocurrency use cases as opportunities to invest in this space keep growing.
This is perhaps unsurprising since millennials are often seen as a generation that’s open to innovation, and the investment space is no exception. They have been quick to adopt new investment trends, such as technology and sustainable investing. And now, a new type of millennial investor is emerging: the crypto-curious kind. A study conducted in the UK found that almost half of millennials would like to see cryptocurrencies in their pension portfolios.
Opportunity for millennials
We may well see crypto assets in our pension funds and 401k’s in the future, but for now, it is an area that investors must learn about on their own. Taking the time to do so, however, is likely to pay off and no one is better placed to take advantage of the opportunities in this space than people who likely still have 30 or 40 years of work ahead of them before retirement, and so decades in which to invest and reap the rewards.
A common fear among those new to the cryptocurrency world is the volatility of this asset. Perhaps this is the key reason why the Gemini study found that just 14% of US adults currently own crypto assets, despite the growing interest.
These fears are not unfounded. Some cryptocurrencies can be extremely volatile, with the largest one - Bitcoin - sometimes posting gains and losses of 20% in a single day. But not all cryptocurrency investing is fraught with such dangers. A well-executed investment strategy can help crypto-curious millennials grow their wealth without the volatility - and this is where decentralized finance (DeFi) comes in.
Regular yield with DeFi
DeFi allows investors to earn double-digit annual percentage yields (APYs) on their investments, up to as much as 18% a year. For most millennials, this is unimaginable in a world where interest rates have remained rock bottom for over a decade across the developed world (and where that doesn’t look like it will change any time soon), indicating a clear DeFi use case among this demographic.
The APY an investor can earn will depend on how much they are willing to put in and which tokens they hold in their wallets, be they stablecoins or other cryptocurrencies. Stablecoins are tokens pegged to fiat, or “real life”, currencies like the US dollar via coins and tokens such as USD Tether (USDT) and USD Coin (USDC). Because of this, stablecoins are a lot less volatile than other cryptocurrencies like Bitcoin and Ether.
As such, stablecoins could be a good option for the crypto-curious millennial making a foray into the DeFi space either held alone or among other cryptocurrencies. The latter strategy can help generate the highest APYs. For example, a millennial may decide to supplement the long-term savings they are making into a workplace pension scheme with some crypto investments in another account or wallet.
A millennial, for example, may decide to use a small fraction of their monthly income – perhaps around $200 – to buy USDT or USDC stablecoins and then invest them into a DeFi wealth management platform paying a base APY of 12% to earn passive income. In five years’ time, this would turn into $16,359, $4,359 of this being returns. In comparison, a typical checking account in the US currently pays an APY of 0.03%. Over five years, the same strategy would result in a total amount of $12,008.85, with just $8.85 in gains!
In addition, she could consider HODLing (crypto lingo that stands for Holding On for Dear Life) some native tokens in her wallet to earn extra rewards. For example, if she HODLs an extra 5,000 YLD in her YIELD App wallet, she will earn an additional 3% APY on her USDT/USDC holdings and 4% on YLD. Over five years, this translates into total gains of $5,759 on the stablecoin portion of the portfolio and $360 on YLD (at the current rate of $0.37/YLD).
Perhaps our millennial also decides to diversity further. She believes in the outlook for ETH, so she decides to HODL one ETH for five years. Earning a total APY of 9% a year on these holdings, at the end of this period she will have 1.57 ETH, which at the current ETH price of $4,520 (as of November 4, 2021) would amount to gains of $2,576. This is on top of any potential gains in ETH and YLD during that time period, which could also be substantial. For example, the price of Bitcoin has jumped more than 5,000% over five years.
From crypto-curious to crypto success
This example clearly demonstrates the unprecedented opportunity to earn passive income from DeFi. In addition, it can help mitigate the volatility of cryptocurrency prices as the APY continues accumulating regardless of price swings. As a result, a passive income strategy could suit the crypto-curious millennial who has, to date, been too nervous of volatility to transform her curiosity into action.
Of course, there are still risks to investing in crypto assets, even those pegged to “real world” currencies. Money held in a traditional bank account in Europe and the UK, for example, is protected up to the value of €100,000, and up to $250,000 in the US. The same cannot be said about your crypto wallet, so it’s really important for investors to think about how much they can afford to put away in crypto investments.
Read more on how to keep your crypto safe
The first rule is to never invest money that you can’t afford to lose, and not to borrow to invest unless you are a professional or highly experienced investor. For those ready to invest in cryptocurrencies, the old adage “don’t put all your eggs in one basket” holds true here too. Investment portfolios should be spread across many different asset types, with cryptocurrencies just a part of a balanced investment strategy.
However, the new and growing DeFi space offers exciting opportunities for those that have some money to spare and like the idea of a regular, passive income that blows the APY on a traditional bank account out of the water. Crypto-curious millennials are in a potentially good position to take advantage of this opportunity without exposing themselves to the volatility of cryptocurrencies.