If you're still holding onto WBTC, you might want to read this article before making any further decisions.

Today is Wednesday, September 4, 2024, and it's time for our monthly BTC hodling review.

Last month (August 5), the cryptocurrency market took another nosedive. BTC fell below $60,000, and ETH dropped under $2,100. Our leveraged BTC hodling position is still safe and hasn’t been liquidated. Over this period, two key changes occurred: one related to improved cognition and the other to environmental shifts. These changes led to specific actions:

• Swapping all ETH for BTC.

• Finding alternatives to WBTC.

Let’s break this down. First, from a cognitive standpoint: ETH shouldn’t be used as a secondary coin for hodling. Instead, it should be leveraged for liquidity mining and staking. For more details, check out my piece titled “Leverage + Mining = Optimal Staking Strategy?”

1. ETH Isn’t Bitcoin’s Second-in-Command and Shouldn’t Be HODLed

Hodling BTC is a compromise. There are few projects that offer reliable, stable returns on BTC. But hodling ETH isn’t necessary, because ETH has many applications in the DeFi ecosystem. Our tests have confirmed that leveraged staking in liquidity mining delivers maximum ETH returns (see the article “Leverage + Mining = Optimal Staking Strategy?”). As a result, hodling ETH makes no sense. From August 11-15, I swapped all my ETH for WBTC over three transactions. See the chart below for details.

This was an easy decision, with little internal debate. Not hodling ETH isn’t a form of abandonment; it’s about giving ETH the potential to generate even more income. The best approach is not to have zero ETH, but to retain 5% for rebalancing purposes.

2. WBTC Is Centralized and Needs to Be Replaced

Now, replacing WBTC while maintaining leverage and hedging is tricky.

First, why does WBTC need to be replaced? It’s centralized, and there’s a risk it could become another HBTC. For details, refer to “What If WBTC Becomes Unreliable?”

Here are three options:

• If Drift introduces a decentralized BTC alternative like tBTC, swap WBTC for tBTC and stay on Drift.

• Use centralized exchanges like Binance or Gate, which offer unified margin systems similar to Drift, allowing leverage and hedging.

• If neither of the above works, give up on leverage hedging and search for a new hodling strategy. This is more challenging.

I didn’t choose the first option because Drift only offers WBTC, and no other BTC-wrapped tokens are available. I didn’t want to choose the second because centralized exchanges carry risks similar to WBTC, if not greater. It's like jumping from a puddle into a fire. However, if you're interested in this option and have limited funds, Gate’s unified account system might work for leveraging BTC. For more on why I suggest Gate, check out my article “Breaking News: Ugly Truths About Bybit.”

For now, I’ve decided on the third option: abandoning leveraged hedging and adopting an extreme rebalancing strategy.

3. The Extreme Rebalancing Strategy with tBTC

The idea is to create a portfolio where decentralized tBTC makes up 95%, and ETH 5%. In this setup, ETH isn’t for hodling—otherwise, it would be at least 20%.

The 5% ETH allocation is for rebalancing. It’s small enough not to dilute the main source of returns (tBTC), but big enough to effectively balance the portfolio during market volatility.

You might already know rebalancing is a tool for reducing portfolio risk. What you might not know is that rebalancing can also generate higher returns. Yale University’s investment strategy is a great example of this.

In 1985, David Swensen became the chief investment officer of Yale’s endowment fund. Under his management, the fund implemented a highly successful rebalancing strategy. From 2000 to 2010, despite the 2008 financial crisis, Swensen’s rebalancing approach helped Yale achieve an average annual return of 11.4%. This strategy allowed them to transfer gains from rising assets into weaker-performing ones during turbulent times, ultimately achieving returns well above the market average.

This efficient rebalancing approach is also applicable to our tBTC-ETH portfolio. By periodically adjusting the proportions, especially during market swings, we can reduce risk and maximize long-term returns.

For example, if tBTC rises and ETH falls, the rebalancing process would involve swapping some tBTC for ETH to maintain the initial ratio. Conversely, if ETH rises and tBTC falls, you’d sell some ETH and buy back tBTC. It’s essentially “buy low, sell high.” The more volatile the market, the higher the potential returns if done correctly.

When I say “extreme,” I mean two things:

1. The rebalancing frequency should be as high as possible.

2. The transaction fees should be as low as possible.

Luckily, I can implement this strategy using the Symmetry protocol.

I’ve chosen an hourly rebalancing frequency and opted for zero transaction fees using passive rebalancing.

The chart below shows the creation fee of 0.28902 SOL, which is the gas fee for Solana, not the DEX transaction fee. This pool is in the testing phase. Once confirmed, I’ll update you. The chart shows performance after 24 hours.

You might notice that, due to the fee-saving passive rebalancing mode, only 5% of the ETH allocation was adjusted within 24 hours. The pool address is here for those interested in checking it out.

Besides the extreme rebalancing strategy, I’m also testing an extreme liquidity mining strategy.

This one is even more proactive, aiming to capture higher transaction fees. You can check out the leading pool’s address when you have time.

But that’s another topic for a different article, which I’ll share with you soon. Consider this a teaser.

Conclusion

Cognition is the ceiling of your investments. Money beyond your cognitive limits will eventually slip away.

In this strategy update, there are three key takeaways:

1. Decentralization is the foundation of asset control. This is why we’re moving away from WBTC. As a centralized asset, WBTC carries trust risks, so we’re transitioning to decentralized tBTC. True control over your assets comes only in a decentralized environment, minimizing third-party risk.

2. ETH isn’t suitable for hodling. Unlike BTC’s store-of-value trait, ETH has broader applications in DeFi. It’s more suited for leveraged staking in liquidity mining than for simple hodling. By actively deploying ETH, you can achieve higher returns.

3. Rebalancing isn’t just a risk-reduction tool. Through strategic high-sell-low-buy actions during market volatility, rebalancing not only stabilizes your portfolio but also allows for extra gains, especially when tBTC is your core asset.

In this fast-paced market, continuous learning is the only way to seize opportunities amid constant change. I’m exploring and sharing with you, and I hope through our exchanges, we can all achieve better returns as our understanding deepens.

For more content, visit the Airdrop Project Hub.

Previous Reviews:

• August 7, 2024: Bitcoin Crash – Is Leveraged Hodling Doomed?

• July 1, 2024: BTC Hodling Review – How Did DeFi Strategies Perform?

• June 5, 2024: Live Session – The Right Way to HODL BTC and Reap DeFi Rewards