What the hell is (a) bitcoin?

[AdmiralKird]

What does the GRB hive mind think of this?

Gemini Earn

Not as a speculative crypto play, but as high-yielding savings safety net alternative to a cash savings account where .3% or .4% are the best interest rates around these days. The underlying coin is their Gemini Dollar, which is a stablecoin pegged to the USD.

I think it's interesting. I don't hold any Gemini though. I also like the idea of staking coins. I have most of my Etherium staked at the moment so it is earning me some interest as well. It was 6% but it's down the last couple months.

I'm kicking the idea around. I've got 6 months' worth of expenses as a safety net parked in cash earning .3% interest, one of the best savings account interest rates around right now. But this Gemini Dollar program is currently paying 7.4% interest. Unlike a bank which only has to hold like 10% in cash reserves relative to deposits, Gemini, if I'm not mistaken, has to maintain a 1:1 reserve ratio. So for every Gemini Dollar they create on the Ethereum block chain they have to hold an actual USD in reserve. That would make it seem like a fairly safe bet, though of course anything could happen to an individual company and the account is not FDIC insured, so the worst case scenario risk is definitely greater.

On the other hand, this is not an insignificant amount of cash, it's returning next to nothing at .3%. I could put it in super safe equities or bonds but that presents as much, or possibly more, risk to a "safety net" as this Gemini Dollar. Or at least that's what I'm trying to figure out.

I don't have the data or tools to accurately price what Gemini is doing, but I would guess that Gemini program is significantly more risky than the stock market for a lower return and Gemini scrapes the excesses returns you should be getting for your risk and dumping it in their bucket. All these bitcoin exchanges and intermediaries are making a boon in the monetary wild west. If they're the first ones to this new market of "stable crypto investment" there's no way their investment is as stable as they claim and there's no way you're getting super great returns relative to your risk. The first one(s) will have a large competitive advantage they will exploit.

[Arthur Dent]

Correct.

What are you going to do when there's theft or the scammers steal your money? With a bank, you have the FDIC. With stocks there's the SIPC that at least covers brokerage issues. With crypto, the Mt GOX scenario is a real possibility. Are you going to hope some weird international litigation that drags on for years will work for you when the thing unravels?

The point of an emergency fund is that it is there for you in an emergency. I would not throw that away to chase a few percentage points. Gambling can work, but I don't think that it's a good plan.

[AdmiralKird]

It sounds like you're basically giving them a loan to buy and hold in ethereum which has an average annualized return of 2,000% (on five years of data which is heavily skewed towards the first year) and they're giving you 7%. The only reason you would do this is because they're guaranteeing you won't lose your investment. But their guarantee is basically worthless, so they just make everything off of your loan.

The four year average of Ethereum returns is 200%. If you want to gamble in ethereum for a 7% return, take 3.5% of what you have in the bank and buy Ethereum with it. You'll now have 96.5% of what you were going to put to Gemini guaranteed safe and in the bank and over a 4 year period if Ethereum keeps doing what its been doing you should make your 7% average interest. Of course you could lose all of it though but you've capped your losses at 3.5% of your initial investment relative to what you were going to put in.

The whole reason for these stablecoins/gemini/etc is just to find additional ways to get more people to stick their money into cryptocurrencies so their older investments increase in value because the only way Crypto actual appreciates in value is by getting people with fiat currency to stick their money into it. It's just another pyramid tactic, but this time under the auspicious of being stable (and giving you relatively no return but don't tell them that).

But it's better than what you're getting in the bank, ehhh ehhhhhhhhhh? Riggghhht? Put your money in heeeeere... so attractive....

[G. Keenan]

Thanks guys. Those are all the risks I too perceive with this. It came up because previously I had this bucket of money in a mix of 85% bonds 15% stocks that would just keep up with inflation. Then my advisory recommended that be changed to 70% bonds, 30% stocks and that I add a 30% buffer to absorb short term market plunges. At that point I'm starting to feel like I'm tying an excessive amount up in a safety net fund. Plus, if I should buffer the fund by 30% because market plunges do happen, how safe is it really? At that point I'm asking myself why not just leave it in cash, but then as the years go by inflation is eating at your safety net if the interest rate isn't sufficient.

[Arthur Dent]

I’m not sure I understand that advice. It sound like they are saying that IF you want to take more risk with your emergency fund, it needs to be correspondingly larger to serve its function in an emergency. That makes sense. But why do you need to take more risk? Just because of negative real returns? I don’t think that’s rational. It would be nice to get lots of unearned income from savings, but the core reason for an emergency fund is that it’s something you can count on and a small negative return doesn’t undermine that really. Let’s say the negative return is 1%. At six months saving, you’d need to deposit 0.5% of your income into the account to maintain it, and I’m guessing what you do with 0.5% of your income is not your greatest concern.

To me even a mostly bonds portfolio seems kind of risky for an emergency fund as rising interest rates could lead to potential short term losses.

Personally, I do a sort of two their thing where I have a core emergency fund that just sits in the bank with the goal of just not losing the money and then a second tier where if I get a windfall like a bonus, I take on a bit more risk. Ultimately, If you do have a savings buffer, I don’t know that stressing out about the returns is worth it. Make sure you have good retirement investments, but your short term financial worries would probably be better invested in questions like, can I get a raise or a higher paying job?

[G. Keenan]

To be clear, my advisory is not recommending I buy Gemini coin. A friend told me about Gemini coin and I was looking into it, but I'm not going to do that.

The goal of the safety net fund in my advisory is just to keep up with inflation. They revised their allocation from 85% bonds, 15% stocks to 70% bonds, 30% stocks based on expectations of higher inflation. The 30% buffer they suggest is so you don't freak out when stocks or bonds take a short term plunge, like they did back in March/April. But that's why I kind of now doubt the wisdom of having your safety net invested in either, as opposed to just cash. Both equities and bonds took a huge dive when the pandemic started. Bonds bounced back pretty quickly but how much of that was because the Fed started buying them to stabilize the market? Who knows if the Fed does that again in the future.

The safest thing is just straight cash, which I'm fine with. Just looking for ways to keep that particular part of money as safe as possible while realizing some modest gains if that can be done without more risk than I'm comfortable with. Perhaps not.

[G. Keenan]

Billion dollar idea: bitcoin mine in space.

Put a few quantum computers on solar powered satellites and, voila, no global warming implications and no pesky governments shutting down your mining operations. Do you even have to pay taxes? Who has jurisdiction?

[IMADreamer]

The big Cryptos hit all time highs this week. BTC, ETC, a few alts etc. I go through periods were I feel like I totally get crypto and I'm on board with it and periods of that this is all a scam and is going to come crashing down soon.

With that said, I took quit a bit of profit today. I do plan to buy what I think will be the upcoming dip.

[heyzeus]

It's absolutely a scam. Most of those crypto companies are completely opaque as to whom they are really distributing their coins to. It's a pyramid scheme. The insiders have secret backdoors to get access to unaccounted coins. Not to mention all the shady offshore banks that are involved.

In 10 years' time, we'll all wonder how we all got so heavily invested into something with so many red flags. We'll also wonder why the regulatory state didn't do anything to protect the consumers from it, but the American way is to protect the banks first and everyone else...well, never.

[thrill]

In 10 years' time, we'll all wonder how we all got so heavily invested into something with so many red flags. We'll also wonder why the regulatory state didn't do anything to protect the consumers from it, but the American way is to protect the banks first and everyone else...well, never.

I'm trying to think of a single major industry where this sentiment wouldn't apply.