It’s possible to free up some money and still have the same upside to Bitcoin. You can make your current BTC work harder for you. What if there is a way to make $5,000 or even $2,500 work just as hard as $10,000?
It’s actually pretty easy…
Let’s say you have 1 BTC — that’s about $10,000 right now. Most people aren’t doing anything with their BTC other than waiting for the price to rise. That means you have $10,000 working for you, but it will only earn you more money when the price appreciates. (Obviously, it can get lazy and not do any work if the price falls, but let’s focus on the positive for a moment.) You should tie up as little capital as possible if price appreciation is the goal. It’s more efficient.
That’s where leverage comes into play. Let’s assume for a moment there is a contract for BTC/DAI that is 3x levered. You can sell your BTC, buy the leveraged contract AND HAVE THE EXACT SAME UPSIDE PROFIT POTENTIAL.
- Sell your BTC
- Buy 0.33 worth of 3x leverage BTC ($3,333.33)
- Pocket the $6,666.67
For every 1% move in BTC, your leverage contract will move 3%. That’s what 3x leverage is and why you only need one-third of the amount. When you originally had $10,000, a 1% BTC move would make or lose $100 ($10,000 x 0.01) which is the exact same amount that your leverage position would make ($3,333.33 x 0.03).
The math isn’t tricky either:
Total BTC / Amount of Leverage = Amount of Leverage Product Needed
The risk of implementing this strategy depends on which specific leveraged product you use. Often times the risk is that the price of BTC falls and you need to contribute more money to maintain your position in the leveraged contract. There is no free lunch, but as long as you don’t over lever, you should be in a better position than if you just held spot BTC, because you have more liquidity and the same potential.
A quick tutorial on how to do this with the LBTC contract:
- Go to our calculator at https://MP.Tools
- You are trying to replicate long exposure, leave LBTC selected in the top left corner.
4. Determine how much LBTC you need to buy using this formula:
Total BTC / Amount of Leverage = Amount of Leveraged Product Needed
An example from the above screenshots assuming you have $6,000 worth of BTC:
$6,000 / 2.22 = $2,702.70
That means you need to buy $2,702.70 worth of LBTC to replicate your $6,000 worth of spot BTC.
5. Do what you want with your extra $3,297.30.