And The Risks Involved
For the uninitiated, staking is when you lock up your crypto for a specified number time usually — 30/60/90/120 days and as a reward, you get an APR (Annual Percentage Rate) reward which is distributed to your spot wallet on a daily basis. It’s a means for project teams to ensure their coin continues to grow in value and isn’t so easily dumped in the market. So the questions to consider are how much are the rewards and what are the risks involved? But, most of all Is Crypto staking for you? Well, that depends. Let’s dive in.
How Big Is Your Portfolio?
First off, you need to look at how big your portfolio is and your overall strategy as a trader. Are you an aggressive short term trader who looks to enter and exit smaller price windows? Or a medium term to long term trader who doesn’t mind holding for days, weeks, months until a trade hits the right profit target?
These type of considerations will determine how you would divide your portfolio between staking and what to leave in your spot wallet ready to be traded.
Assuming your portfolio is worth $5,000. Here are some examples of how traders with different priorities would approach staking.
Short term traders — Most short term traders are adept at TA, and with that confidence you see a tendency towards aggressive trading. They mostly have 85–90% of their crypto in their spot wallet, waiting for price opportunities to trade and maximize their daily profits. This kind of strategy is much more lucrative to them, than mostly relying on staking.
Medium term traders– These traders usually have 80-90% of their portfolio staked. Since it aligns with their medium term goals they opt for 30–60 days of locked staking, while utilizing 10–20% of their spot wallet for some quick trades.
Long term holders — These traders buy and sleep on their stash. They’re in it for the long run and so their habit involves staking their crypto for a longer amount of days. Usually 90–120 days.
When Would Be The Right Time To Stake?
You can stake whenever you want, but of course, there are times which make more sense to do so.
If you’re in a bull market and you reached the point where you’ve sold all your crypto into fiat, then it makes sense to go ahead and stake your USD until the next time a buying opportunity arises.
On the other hand, if you’re still waiting to cash out, and your crypto is close to reaching its sell price target, it simply wouldn’t be wise to stake as your holdings would be locked and you wouldn’t be able to sell even if you wanted to. There is the option to redeem earlier, but it usually takes two days for the crypto to return to your Spot wallet and You’d be losing the APR rewards accrued so far.
In Bear markets however, it makes more sense to stake as much as possible since prices have crashed badly and recovery may take months, if not years. And since Bear market days are filled with flat charts, trading for profit can be very challenging. Staking in this case, ensures that you keep your portfolio growing during a time where accumulation is an absolute must.
Keep in mind though that there are still risks associated with staking even in a Bear market.
What Are The Risks?
As mentioned, if you’re staking during a Bull market where prices can shoot right up in an instant. You won’t be able to sell. You would have to continue to stake and just be content with whatever amount you’d be getting when the specified lock duration ends — this could be much less than what you could have got if you sold. A crash could also happen during a Bull market and you wouldn’t be able to react.
During a Bear market, just because charts on most days are flat it doesn’t mean that coins you’re staking are incapable of having wild pumps— It could happen! These kind of pumps sometimes don’t last for long and usually people are quick to sell and take profits. Having those coins locked means you will miss that opportunity to sell.
The most severe risk of staking is a rug pull or a hack could occur and while people are relentlessly selling to save whatever fiat they can, you can’t do anything about it.
Which Coins Should I Stake And Which Should I Buy To Stake?
Have a look at your portfolio and consider the APR reward (See above) you’d be getting if you staked all the coins you hold. Is the return attractive enough to leave it locked for a minimum of 30 days or more? Whether that’s worth it or not is down to you.
If you’re trading and making profits, consider putting a significant amount of the profits towards great projects which have high APR. For example at the time — Cake would give around 55% APR return for 30 days staking, while AXS would reward users with 70% APR for 30 days. Always look at which listed coins can grow your portfolio better than others in the same amount of time — within reason.
Don’t slouch on research due diligence. If you find a solid project with high APR, consider going for it. On the flip side, some shit coins have really attractive APR, don’t make that mistake! Let good research always determine what you buy, nothing else.
So Is Staking Worth It?
That depends. While some out there are making hundreds of thousands of dollars each month because of their massive portfolios, smaller traders would need a significant amount of crypto to make it worth their while.
If you’re staking enough crypto during the Bear market where it’s bringing in at the very least $50–$100 monthly. Why not?! It keeps your portfolio growing during a time when there isn’t much price volatility and the road to recovery can be a long one.
On the other hand, if staking isn’t bringing in a significant amount, then it’s a waste of time. You’d be better off keeping much of your crypto in a Savings account and using some of it to trade (If you know what you’re doing!). Saving account APRs are small (1–5% on average). But, on the flip side it is flexible where your crypto is not locked and you’d be able to redeem it instantly should there be any big market movements or unfortunate circumstances that require a quick reaction, so the risk is significantly lower.
My Staking Strategy
As mentioned above, most of my portfolio is being staked right now. I just don’t see a recovery anytime soon, so for me it makes sense. The left over crypto which I have in my portfolio is used for quick trades and profits from that as well as APR rewards go towards growing my portfolio.
As for managing risk, while I was choosing to stake for 90–120 days-months ago. I found that the prolonged lock up time was too risky for my taste and I’ve since opted to utilize 30 day staking as I find it more flexible.
One thing which helps me determine how long I want to stake is to consider the current price vs. my sell target. If I have a coin which is currently priced at $50 and I’m waiting to sell it at $800 (Looking at you Comp!) I’ll take a while to get there and so staking would be ideal for me.
In the end, staking can be a significant strategy to help you grow your portfolio during slower times. BUT, you need to consider how much you can allocate towards it and whether the rewards are worth the time / risk of having your crypto locked up for a specified amount of time.
In my case, staking along with trading profits have had a profound effect on growing my portfolio during the current market.
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If you have any questions or need advice, feel free to get in touch!
Disclaimer: I am not a financial advisor. The above is based on strategies which I have developed as a trader through years of trial and error. You are free to use those strategies as you wish at your own discretion, however, I am not responsible for any losses you may incur as a result.
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