Investing in dollars can be a good alternative for more conservative investors; understand why and how to invest.
It is practically a consensus in the crypto community that investing in Bitcoin is better than investing in dollars , due to the characteristics of decentralization , self-sovereignty, protection from censorship , governance based on a protocol with well-defined, non-arbitrary rules and a programmed and controlled inflation in bitcoin, unlike the corrupt and political inflation of the dollar and other fiat currencies.
But it is also known in the market that bitcoin is still an asset subject to extreme volatility and price manipulation by whales – a problem that must be resolved over time, with the entry of new investors, capital dispersion, capitalization increase early adopters’ market share and partial profit taking.
So often the investor may face the dilemma of looking for more conservative investment alternatives. In the traditional market, the recommendation is usually to invest in Bonds, which are bonds – credit – public or private.
What are bonds – bonds of credit
When a company or government needs money, they have some options to capture those values in the market. The government, for example, can issue public debt bonds, which are purchased by companies or individuals and these are remunerated through interest.
Likewise, when companies need to raise money, they can also issue debt securities – called debentures, in Brazil, or bonds abroad.
When a public agency, or a private company, issues bonds, it borrows money from the market, under the obligation to honor this debt within the established maturity, with the addition of a fixed or post-fixed interest rate.
These bonds can be traded on the financial market and also suffer price fluctuations, according to the health of the company (or the government) and its risk assessment, which takes into account the probabilities of the company (or government) defaulting on the debt due to bankruptcy, decree, or other reason.
The term bonds ends up being more used in the international market to refer to government bonds, as happens with the direct treasury in Brazil.
What are the risks involved?
By investing in bonds, the investor exposes himself to some risks.
The main one is the trust risk. When investing in bonds, one expects to get a return exactly on the probability of not being paid by the borrower. The greater the probability of default, the greater the percentage return (interest) on debt needs to be to keep the investment attractive.
What makes the best yield opportunities (percentage return) linked to very high risk assets, as is the case in Brazil, promising returns in excess of 10% per year in direct treasury, but rated as BB- by Fitch Ratings and Standard & Poor’s, which places Brazil in the so-called “ speculative grade” of the medium level.
The speculative grade classifies countries that cannot be considered a “solid investment”, involving a high risk of default.
In the case of countries of “investment grade” AAA, high-level, such as the US, the yield achieved with the bonds is quite low and end up offering a lower reward to inflation, which reached record mark of 6, 8% in the year in November 2022.
US bonds maturing in 10 years are paying a yield * of 1.46% – with a drop of – 40.29% in the last 5 years.
But perhaps the biggest added risk when investing in bonds is that of liquidity.
As explained, when investing in yield, the investor is lending money to the issuer of the bond, with the expectation of recovering the amount at maturity, plus an annual yield (yield) as long as he holds the bond.
Thus, in a 10-year bond (the most relevant in the market), the investor only recovers his investment on the maturity date, or by selling it to the market. If he bought on the day of issue, the period of capital illiquidity would be 10 years.
Default risk may change during these 10 years, as well as the yield paid annually. Depending on the risk-benefit ratio, the security’s pricing may suffer a lot of volatility in the period.
If the investor needs to liquidate the investment, he is subject to price volatility, or to a penalty on interest, which can even be negative.
Performance of some titles
Analyzing some other bonds from countries with AAA rating, we see a yield similar to that of the US, as is the case of:
Denmark 10-Year Bonds : Yield of -0.35% (negative yield), down by -275.99% in the last 5 years.
UK 10-Year Bonds : Yield of 0.74% , down -32.32% in the last 5 years.
Australia 10-Year Bonds: Yield of 1.63% , down -40.20% in the last 5 years.
Investing in Dollars, How and Why?
If we look at the performance of the dollar against the real, we see an appreciation of +72.00% over the last 5 years, which would result in an approximate yield of 14.40% per annum for an investor long in USD .
Better than Brazilian bonds
What is already a yield almost 50% higher than investment in government bonds backed by the direct treasury IPCA .
Just because it’s bought on the dollar, with it sitting in a bank account; in custody of investment platforms; or in the form of stablecoin in a private wallet – which could be the best alternative for guaranteeing the sovereignty of funds and a greater degree of privacy.
Investing in dollars is already remarkably a better option than investing in Brazilian “bonds”, even with its glaring profitability compared to other government bonds in the world, due to the high risk Brazil of BB- .
This is because the real is inevitably doomed to lose value against the dollar – for several reasons, but – simply because the BCB inflation target ( 3.75% ) is historically higher than the FED inflation target ( 2% ) . Characteristic that must be maintained for economic, political and cultural reasons.
But when we talk about investing in dollars being better than investing in bonds , it is not: “just be long in USD, USDT, USDC, BUSD or DAI, for example”.
Because an investor in Brazil could, perhaps, maximize their return by buying the dollar, and with that dollar, buy 10-year bonds in the US, getting a return on the USD/BRL (dollar vs. real) rate plus the 1.46% of bond yield, right?
The alternative I want to present in this article is an even higher maximization, which also involves risks related to trust, as the investment in dollars would be carried out through a centralized service provider, but which still offers advantages over the risk of default.
In addition to offering superior liquidity and not penalizing the investor when redeeming funds in the short term. No salaries.
Flexibility in the redemption of the investment helps to further mitigate the risks related to trust, as it is possible to act quickly to protect the funds under changes in the macroeconomic or micro scenario – related to the company offering the service.
Investing in dollars with Bybit
Bybit is one of the largest cryptocurrency exchanges in the world, arriving strong in Brazil recently, with the option of deposits and withdrawals in BRL (Brazilian Real), as long as the customer identifies with KYC – Know Your Customer.
If the investor wants to trade only with crypto and stablecoins, he is exempt from the KYC.
Bybit offers the option of investing in dollars with USDT or USDC , each yielding 3.50% or 8.88% per year in the “Flexible Staking” option, with liquidity, allowing the redemption of funds at any time, according to exchange.
Even the lower yield option (USDT) already offers a yield more than 100% higher than that of American bonds, even with greater liquidity.
To invest, simply register , send the USDT or USDC of an account (if you already have the assets) and perform the Flexible Staking.
Investing in Dollars with Binance
Binance also offers the option of investing in dollars in the savings mode (flexible savings), currently paying a 5% yield for investments of up to 75k USDT, higher than that offered by the competitor.
Values can vary over time, so it is recommended to monitor the market to take advantage of the best opportunities.
Binance is KYC mandatory and is the world’s largest exchange, leader in volume and offering of digital assets.
As with Bybit, this modality still carries a risk of trust in a central institution. Which means your investment is safe as long as Binance (or Bybit) is safe.
The custody of the funds is the responsibility of the companies and the investor does not have sovereignty over the private cryptographic key (seed).
Investing in Dollars with Pancakeswap
For the enthusiasts of decentralization, privacy and sovereignty of funds, one option is to invest in dollars through decentralized exchanges – DEX , or DeFi platforms .
pancakeswap.finance has good options for investing in dollars with several modalities.
One of them is through Farms , which investors can exchange Liquidity Points (LP – Liquidity Points ) for decentralized investments with variable annual returns of 39.66% , 10.81% , 42.43% , among others.
In the image, I went to Earn > Farms and filtered the options by “Liquidity” (peers with higher liquidity and lower risk). To be able to use this type of investment, you must first have both currencies of the pair in your portfolio and generate the LP’s in Trade > Liquidity .
Although there is no trust risk, as is the case with Bybit or Binance (a risk that is minimized according to the strength of the business), there are other risks related to the provision of liquidity.
When investing with liquidity points in Pancakeswap farms, if one of the pairs is harmed in the market – for whatever reason – the expected return may be harmed, as well as the ease of redeeming the funds.
Investing in DeFi platforms requires more experience, as the investor is solely responsible for following the market and managing their funds.
This also occurs in the centralized modalities, but the responsibility ends up being shared with the service provider and, usually, it has some type of insurance, legal support (KYC required) and customer service support.
Research, study, inform yourself and just invest with confidence and knowledge.
The contentInvesting in Dollars is Better Than Investing in Bonds first appeared in Cointimes.