United States Dollar Coin (USDC) has proven to be one of my favorite high-yield investments over the past year. Using Voyager (affiliate link), it is easy to get your money in and out of USDC while earning 9% interest.
However, since the rise of inflation, Series “I” Bonds from the US Government have yielded over 7%, with the last update bringing the interest rate to 9.62%.
With both investments now above 9% interest, now is the perfect time to compare them both for the long run. Which investment should you prioritize in your portfolio?
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Security above all else. When it comes to investing, you want as much security as possible. Previously, I stated that you could use USDC in your emergency fund and save a down payment on your home.
USDC has a lot of use cases, but first, you have to trust cryptocurrencies and stablecoins. In May 2022, the trust in stablecoins hit rock bottom.
The algorithmic stablecoin, Terra USD, crashed because of a coordinated attack on its investment methods. Please read the article on The Verge to get more details on this world-shattering event.
Because of the collapse of Terra USD, many people withdrew their deposits from USDC and USD Tether. However, as you can see, stablecoins are still 3 of the top 10 biggest coins on the market (by market cap).
USDC is a collateralized stablecoin. For every dollar invested in USD, they mint a USDC coin. This means it SHOULD never have a crazy moment like Terra USD, which used different investments to keep it pegged to $1. (The keyword is SHOULD)
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Use cases of stablecoins. To trust stablecoins, you need to understand why people invest so much money into them. This will also help with your investing thesis versus Series “I” Bonds.
Many of the people who invest in stablecoins do so because of leverage. As learned in “Passive Income in Defi 102: Lending & Borrowing,” cryptocurrencies use a trust-less lending protocol.
Trust-less means that you need the collateral to borrow the money. For example, if I had $100,000 in USDC, I can make a trust-less loan against this collateral of $40,000 to $50,000 USDC.
I would pay roughly 11% on my loan, and I would have no deadline for repayment. Therefore, if I racked up a large amount of USDC, I could borrow against it for emergencies, vacations, and renovations. Anything I choose.
Most billionaire CEOs with vast amounts of stock options use leverage like this for living expenses. In the article “Debt vs. Equity,” I explained that most debt instruments do not incur tax consequences.
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USDC vs. “I” Bonds. Now, let’s put on our long-term thinking hats and critically consider how to invest. We have full faith and confidence in the US Government to repay Series “I” bonds.
However, Series “I” Bonds reset every six months to match core inflation numbers. As you can see above, Series “I” Bonds don’t have a great history of paying high yields. You usually don’t get high yields with safer investment strategies.
Series “I” Bonds will be around in 30 years, and so will the US Government. We may not say the same for cryptocurrencies. However, I believe that cryptocurrencies will overtake traditional finance (TradFi) over the next 30 years.
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Decentralized Finance (DeFi) opens the door to lots of banking and peer-to-peer options people NEED in their lives. Why do I need to wait until Monday morning to transfer my mom’s money to Arizona? Why do I need to go through a third party (banks) to transfer this money?
If I have $10,000 in savings, why do I need to fill out an application to borrow $3,000? Also, remember that third-world countries suffering from hyperinflation will use cryptocurrencies to keep their money from evaporating.
Crypto is here to stay, and stablecoins (by extension, USDC) will play a massive part in the transfer of wealth back to the people. Therefore, I consider USDC an 80% safety rating compared to Series “I” Bonds 100%.
There are not many 80% safety rating (my simple system) investments where you can earn 9% interest. Usually, at 9%, your safety rating will be around 60%. With investing, you always have to know the risk and your appetite for risk.
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Split the difference. Why not split the difference? In the long-run, Series “I” Bonds will settle around the 3% mark. That’s okay because they are not high-yield investments.
By using Series “I” bonds towards your emergency fund, you can safely explore other options in cryptocurrencies, the Metaverse, and decentralized finance (read “Counting on Crypto 2”).
Let’s look at a $100,000 investment portfolio. You may want $30,000 in Series “I” Bonds. Perhaps you invest $20,000 in USDC and the rest in the stock market.
The best way to prevent getting burned is by understanding your investment vehicles and diversifying across multiple asset classes. Remember, you don’t make your money on the markets—create infinite returns so that you can print money. Then you invest that money into the markets.
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Conclusion. Currently, both investments are over 9%. There is no way to predict where they will be a year from now. However, USDC has (in my opinion) a 10X better chance of paying higher than Series “I” Bonds this time next year.
Inflation looks to be subsiding, and I know the US Government does not want to keep paying this much interest on its debt.
USDC, stablecoins, the Metaverse, and decentralized finance will grow more prominent each year. USDC will play a huge role in getting retail investors (main street consumers) to convert their hard-earned dollars into crypto assets.
Offering 9% will be a massive lure to most folks and will keep people invested in USDC for the long run. Use both Series “I” Bonds and USDC in your portfolio to over safety and yield.
Keep an eye on Federal Reserve interest rates and the crypto markets to predict where the respective assets are heading. Good Luck!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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