The reality of opportunity cost is none more prevalent than for crypto investors. As the bulls return to the crypto market, its been well publicized the rally in cryptocurrency investments – BTC doubling in a month is one that jumps out. What could have been? My old economics lecturer stated the two saddest words in the English language were “if only”.
Yet, there are the unfortunate many who exited a month or more ago. Retrospect is a funny thing, frustrating when you are looking back at what could have been, on the other hand it presents the opportunity of education. Taking the learnings from the past and applying them to the future. Afterall, the definition of insanity is do the same thing repeatedly and expect a different result. Any trader worth their salt knows that strategies have to be scientific – theoretical with assumptions then tested in reality, the results are analyzed and amendments made.
So what motivates someone to exit a position? Moreover, what if that position was discretionary – one you don’t depend to live? The answer is simple, it’s that sometimes life gets in the way and is more important than your portfolio. In these instances (and we’ve all been there, anyone who says they haven’t probably has had a black AMEX their entire life), if we are lucky we liquidate. If we are unlucky, we borrow to bridge our cash flow. The deposit for a house, car repayments, school fees, etc etc. Until we operate in a world where fiat and crypto are as interchangeable as say frequent flyer points and cash, those of us with hodl positions will have to liquidate and suck up the opportunity cost, the capital gains exposure, the “if only”.
Or do we? Would you use your position as collateral? After all, if the regulators are going to define cryptocurrency as an asset for tax treatment, then the general market sees crypto as having value. Asset backed loans aren’t new. Crypto loans aren’t new. Collateralizing your digital assets in exchange for fiat means those early adopters don’t suffer the pitfalls of opportunity cost, nor are they exposed to any tax treatment. Effectively, enabling crypto investors to have their cake and eat it too.