Is Putting Your Emergency Fund Into Crypto Smart?
Deciding whether or not to put your emergency fund into Stablecoin is a difficult decision. On one hand, you want to be sure that your money is safe and accessible in case of an emergency. On the other hand, you don’t want to miss out on potential gains if the price of Stablecoin goes up. There are some serious considerations to think about when talking about putting your emergency fund into Crypto, but when it comes to Stablecoin, which is the Crypto Currency equivalent of a TIPS bond, it may be more risky to NOT keep your emergency fund in Stablecoin. And so, in this blog post, I look at the question of is putting your emergency fund into Crypto smart, and why you may want to take a look at Stablecoin.
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The Argument For Putting Your Emergency Fund Into Stablecoin
Stablecoin is a smart contract platform that allows anyone to issue their own blockchain-based digital asset. These assets can be whatever you want them to be and are backed by the full faith and credit of the issuing entity. In other words, if you issue a Stablecoin based on your fiat currency, it should theoretically map that fiat almost to a tee, whether the US Dollar, the Euro, etc.
The Downsides of Keeping Your Emergency Fund In CDs vs Crypto
The main downside of keeping your emergency fund in Stablecoin is that it’s a relatively new platform. This means that there aren’t as many options when it comes to Stablecoin-based assets, and the ones that are available may be more volatile than traditional fiat currencies.
Another potential downside is that, if you keep your emergency fund fully liquid instead of in Crypto, is that fiat depreciates in value no matter which way you spin it. It is almost crazy to keep $30,000 in a fully liquid emergency fund at 10% inflation rates. I am personally trying to structure my finances in a way that every single penny that I have on me is making some sort of money. I get money back on every single dollar I spent via Credit Card rewards points, and I get money on the full $20,000 that I keep in my emergency fund via Ally CDs and an Ally High Yield Savings account. I do have one account I use for expenses that gets 0% interest, and I only keep between $100 and $500 in there as needed.
What I also do is try to invest my remaining capital as much as possible, every single dime over $20,000 goes into the stock market, where my new portfolio allocation is something like 20% Crypto Currency, 40% Global Index Funds and 60% S and P 500. All of the dividends get allocated according to the tide.
Is Stablecoin a Good Long Term Buy for Inflation Hedging?
To answer the question in the title, yes, stablecoins are definitely a good long term buy for inflation hedging. I would go so far as to say that they are essential in any portfolio meant to survive and thrive during periods of high inflation. Given that Stablecoin is what I would say better than even Treasury Bills or long term money market securities for protecting your cash against inflation. I would recommend using some diversified Crypto ETFs rather than actual Crypto exchange coins, but either one as a small percentage of your emergency fund portfolio allocation is likely going to be better over the long term then having it sit in naked cash or CDs.
What are Stablecoins?
A stablecoin is a digital asset that serves as essentially the Cryptocurrency equivalent of a TIPS bond, and I would recommend keeping a small percentage of your assets in one as an Inflation Hedge. On say a $20,000 or $30,000 emergency fund, an allocation of $5,000 to Stablecoins and another $3,000 or so to a diversified Crypto Fund ETF, especially given these insane inflation amounts, may not actually be the worst idea in the world. Aside from that, even with the stock market right now, at a 10% annual return you are breaking EVEN on your money. With cash you are losing 1/10th of your assets each year! There’s nothing else to buy, Crypto is even more aggressive than an equity portfolio, and I would say that it may not be the worst decision to buy it in this trying time of massively high inflation levels.
Final Thoughts On Is Putting Your Emergency Fund Into Crypto Smart? As A Small Allocation It May Not Be A Terrible Idea
I would say that putting a small percentage of your emergency fund into Stablecoins or into diversified Crypto ETFs is a wise decision indeed. Stick to a 15 to 20% allocation, as obviously the rest of the emergency fund needs to be rather liquid in case of an immediate emergency (it is not smart to be having to go into debt while you wait for your Bitcoin to settle into cash and pay for a new car battery) however get some points on the rest. Your money is bleeding out heavily right now due to Inflation, I say not taking a risk is also a risk at this point, buy the Stablecoins.
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