I spent the day rethinking my priorities for my Ether.fi Cash (affiliate link) account. My portfolio has grown, over the past few months, to a comfortable level of credit. In case you're not familiar, you can use your crypto balance in the account as collateral for the credit card. There is an option to spend directly from your cryptos, but I prefer to have it in borrow mode. The way I initially thought of my Etherfi account was as a form of savings. But after some consideration, I'm changing my point of view.
The author is restructuring their Ether.fi Cash strategy to focus on building credit rather than savings, abandoning the 10% monthly collateral contributions in favor of letting holdings grow organically through market appreciation and reinvested rewards. They plan to use "core number compounding"—a buy-low-sell-high technique during market volatility—to generate cash and increase credit line value without additional out-of-pocket deposits.
In a previous post, I was thinking of using my Etherfi account for Velocity Banking. The only issue I have with using the account this way is that not all bills can be paid by credit card. Some merchants only accept debit card or bank payment. In order for me to use credit for this purpose, I need to set aside money or cash out some crypto to make the payment. It works. It's just not the best option.
I'm not abandoning Velocity Banking completely. It's still a line of credit that offers a much better interest rate (4%) than regular credit cards. This means that it's less of an uphill battle to pay down the balance. I've diverted the majority of our household spending to the Etherfi Cash card.
The thing is, I've reached a point at which I will no longer be diverting 10% of my deposits to grow my Etherfi Cash collateral. The extra 10% was a bit of a stretch for my budget. But now that I've reached the desired level of credit, I can deposit USDC to only pay down my borrowed balance. Previously, if I spent $2000 one month, I'd be depositing $2200 to pay down the balance while increasing my line of credit.
Yet, I could always use more credit.
One way of doing it is to just let my holdings grow on their own. For example, eBTC could 2X or more in 2027. My staked holdings could also compound the yield they offer. And, I can continue to reinvest my 3% cash back rewards, which are roughly $60-70 per month.
I've also written about Core Number Compounding in previous posts. I've used it during bull markets to generate cash from market volatility. But, core number compounding doesn't work during bear markets. It's better to just cash out and wait for a market to bottom.
In my opinion, we are somewhere near the market bottom. Perhaps we have some more down days on the way. But at this point the drawdowns will be more manageable than from a market top.
Core number compounding, by design, ensures that you buy low and sell high during a volatile, up trending market. But if the overall direction is down, you end up buying and buying with few, if any, chances to sell.
There are some who think that we will likely still draw down until October. I have no way of knowing if this is true. But, it's close enough that I can start maneuvering to have core number compounding ready to go when Bitcoin finally gets its act together.
I had an intrusive thought this morning: EtherFi is a credit machine.
Once this thought took hold, I had to reevaluate my thinking. There is some DeFi contract risk, which makes it risky to use the account as my main savings vehicle. A more adequate place to put my savings is in my Ledger hardware wallet.
It was important for me to remember what my original intent for the Etherfi Cash account was. Credit.
What changed is that savings is now a separate account. The 10% of diverted cash will need to go elsewhere. The Etherfi account will have to grow on its own without me putting in any more USDC out of pocket (wallet).
This is where core number compounding comes in. It will grow the line of credit in two ways, generating cash and better LTV. Before we get into that, here's an example on how core number compounding works.
Establish a balance of $2000 of BTC. This is the core number. It can be any number.
If BTC goes up 1% ($2020), then sell $20 into USDC to bring the balance back down to $2000.
If BTC drops by 4%, then buy $80 from USDC to brink the balance back up to $2000.
This guarantees you buy low and sell high (in a sideways or uptrending market). The goal is to always bring it back to $2000 once the trigger levels are reached.
That's it. No technical analysis or research needed. The only signal you need is the nominal value of your crypto, in this example $2000 of BTC.
Core number compounding, in the right conditions, throws off a bunch of cash in a volatile market. You can have multiple 1% upswings and a few 4% downswings in a single day. This is one way core number compounding can grow my Etherfi credit. Again, by design, you always buy low and sell high.
The second way is that eBTC, the staked option for BTC on Etherfi, offers 52% LTV credit. So, that $20 gain would get me $10.40 in additional credit.
Converting the $20 gain in eBTC to USDC, which has a 90% LTV, yields $18 in credit. That's an additional $7.60 in credit than eBTC gets.
Once the bankroll gets bigger than the core number, I could bump up the core number to $3000 in eBTC. At that level, a 1% upswing yields $30 ($3030) and a 4% downswing costs $120 ($2880). That same 1% bump in BTC price would get $27 in USDC credit rather than $15.60 from the eBTC, an $11 difference.
There are some guys who do this with a $10,000 core number. A 1% bump gets them $100. A 4% drop costs $400.
Why 1% up and 4% down? You want to have the 5% range to make the tax thing worthwhile. You could, if you want, set the lower limit to 5% and the upper limit to 5%. But you'll have fewer triggers in that 10% range. A 5% range is wide enough to capture intraday volatility and give you enough profit margin to make it worth the trouble of doing taxes. From experience, a bull market gets you more 1% sells than 4% buys. And sometimes BTC just jumps past the 1%, netting you more cash.
In my example, I'd start with $2000 of eBTC and $0 USDC. I'd end up with $2000 of eBTC and a pile of USDC.
This method yields more cash than just buying and holding because with market volatility, you might retread the same price level several times before breaking out to a new high.
Let's circle back to the credit machine. The whole point of this setup is not to build wealth, although it inevitably will. The point is to build up my line of credit without having to put in any more money to build up collateral. When I do transfer money into Etherfi, it will be to pay down what I borrowed, not to add collateral.
The advantage of using Etherfi Cash is that there are no minimum monthly payments, a low 4% interest rate, and a credit line of my choosing. Crypto nerds can appreciate that the account is non-custodial. All my collateral is on-chain.
The main driver for growing credit is to always have a healthy distance between my borrowed balance and getting liquidated. This is where having an equal amount of USDC and eBTC is beneficial. If there is a market downturn, the USDC cushions the drawdown and resulting decrease in credit.
When my priority is credit, I'm less concerned about inflation. Rising costs also increase the 3% cash back rewards. My monthly $60-70 cash back might go up to $70-80 monthly cash back or more as prices increase.
Furthermore, if I do core number compounding right, then I should outpace holding BTC. More importantly, my credit will more than keep up with inflation.
#cryptocurrency #defi #etherfi #crypto-finance #velocity-banking #btc #investment-strategy #crypto-credit #blockchain #financial-planning
