People with significant cryptocurrency holdings generally don't have problems with the market itself, but rather with custody, taxes, and operational risk . Therefore, the best advice isn't so much "what to buy," but "how to avoid losing it."
A good starting point is custody. If someone has significant exposure to assets like Bitcoin or Ethereum , keeping everything on an exchange is often the weakest link. Exchanges are convenient, but they introduce third-party risks, such as fund freezes, hacks, or regulatory compliance issues. Most long-term investors move a large portion of their assets into self-custody (hardware wallets, multi-signature setups, or institutional custodians if the amount is large enough). The key idea is simple: whoever controls the private keys controls the assets.
The second aspect is tax planning, especially in the United States. Cryptocurrencies are considered property, not currency, so every exchange, sale, or even certain events related to returns can generate tax obligations. Large investors often underestimate how complicated tracking becomes when using DeFi, staking, or multiple wallets. Record-keeping tools and, in many cases, a cryptocurrency-specialized accountant become as important as the investments themselves.
The third point is risk concentration. Many people accumulate wealth during a bull market and end up overexposed to a single asset class. Even if they have strong conviction in cryptocurrencies, it's generally safer to set limits on the proportion of crypto within their total wealth and rebalance periodically. This isn't because cryptocurrencies are inherently "bad," but because volatility and the liquidity needs of daily life aren't always compatible.
The fourth aspect is security. This is where many losses actually occur: phishing, fraudulent SIM swapping, fake support agents, and malware. For those holding large amounts of cryptocurrency, operational discipline is crucial: use separate wallets for trading and storage, use hardware wallets, never reuse emails or passwords, and carefully verify any request or communication. The human factor is often the weakest link.
The fifth point is regulatory and legal awareness. Rules regarding tax reporting, estate planning, and business use of cryptocurrencies vary and are becoming more stringent over time. For those with substantial crypto holdings, it's worthwhile to think ahead about inheritance and who will have access to the funds if something happens to them, as well as the legal documentation of the assets.
Finally, liquidity planning is more important than many realize. Cryptocurrencies can become highly illiquid during periods of market stress, so having a reserve of cash or stable assets can prevent the need to sell at the worst possible time.
In the United States, the Internal Revenue Service considers cryptocurrencies as property , not foreign currency. This means that many cryptocurrency transactions can generate tax liabilities.
Events subject to tax
You may have to pay taxes when:
You sell cryptocurrencies for US dollars or other fiat currency.
You exchange one cryptocurrency for another (for example, exchanging Bitcoin for Ethereum ).
You use cryptocurrencies to buy goods or services.
You receive cryptocurrencies as payment for work or services.
You receive rewards for staking, mining, airdrops, or certain bonuses.
Capital gains tax
If you sell or exchange cryptocurrencies, the taxable gain is calculated as follows:
Capital gain = Selling price − Acquisition cost (what you paid for the asset).
Short-term gains: Assets held for one year or less are generally taxed at the ordinary income tax rate.
Long-term gains: Assets held for more than one year may qualify for reduced long-term capital gains tax rates (generally 0%, 15%, or 20%, depending on your taxable income).
Example
You buy 1 BTC for $30,000.
Later you sell it for $50,000.
Your taxable capital gain is $20,000 .
Income tax
If you receive cryptocurrency as compensation, for mining, or for staking, the value of the cryptocurrency at the time you receive it is generally taxed as ordinary income . If you later sell that cryptocurrency, you could also realize an additional capital gain or loss.
Declaration requirements
The IRS asks taxpayers if they have made transactions with digital assets on their tax returns, and many exchanges now issue tax forms and report information to the IRS. Therefore, it is very important to maintain detailed records of purchases, sales, transfers, and wallet activity.
DeFi (Decentralized Finance) is a financial services system built on blockchain networks, primarily on Ethereum , that allows people to access financial products without traditional intermediaries such as banks or brokers .
Examples of DeFi activities include:
Loans and credit: You can lend your cryptocurrencies and earn interest, or borrow using your crypto as collateral.
Decentralized exchanges (DEXs): Platforms where users trade cryptocurrencies directly with each other without a centralized exchange.
Staking and yield farming: Locking up cryptocurrencies to earn rewards or providing liquidity to earn fees and incentives.
Stablecoins: Cryptocurrencies designed to maintain a stable value, typically pegged to the US dollar.
How DeFi Works
Instead of a bank managing transactions, DeFi uses smart contracts — self-executing computer programs on the blockchain that automatically enforce rules.
Potential benefits
24/7 access from anywhere with an internet connection.
A traditional bank account is not required.
Greater control over your assets.
Possibility of generating returns.
Risks
Errors or failures in smart contracts.
Scams and fraudulent projects.
High volatility and potential losses.
Regulatory uncertainty.
Losing your wallet's private key can mean losing your funds permanently.
If you hold large amounts of cryptocurrency, DeFi can offer opportunities, but it also introduces more risks and greater tax complexity, as many DeFi transactions may be taxable in the United States.
Borrowing in DeFi essentially means obtaining credit from a smart contract instead of a bank. The most common way to do this is: you deposit cryptocurrency as collateral and then borrow another asset using that deposit as backing.
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1. Choose a reliable DeFi platform
Most loans are made through established protocols such as:
Aave (one of the largest DeFi lending marketplaces),
Compound (one of the first DeFi lending protocols),
MakerDAO (used to generate loans in the DAI stablecoin)
These operate on blockchain networks like Ethereum and, in some cases, others like Polygon or Arbitrum.
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2. Connect a cryptocurrency wallet
You need a self-custody wallet like:
MetaMask
Trust Wallet
Hardware wallets (Ledger, Trezor)
This wallet holds your cryptocurrencies and connects to DeFi applications.
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3. Deposit collateral
To borrow, you must first deposit assets such as:
ETH
WBTC (Bitcoin “wrapped” in Ethereum)
Stablecoins (in some cases)
This collateral is locked in a smart contract.
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4. Borrow funds (you can't borrow 100%)
Then you can borrow a percentage of the value of your collateral.
Typical rule:
You can request between 50% and 75% of the collateral value (called LTV = loan-to-value ratio)
Example:
You deposit $10,000 in ETH
You can borrow approximately $5,000–$7,000 in stablecoins (such as USDC or DAI)
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5. Monitor the risk of liquidation
If the value of your collateral falls too low, the system automatically liquidates some of your assets to repay the loan.
This is the biggest risk in DeFi lending.
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6. Pay interest and pay back whenever you want
Interest rates are usually variable
You can repay the loan at any time
Once paid, your collateral is released
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How to “find” safe opportunities
Instead of using random sites, use:
Only official protocol websites (Aave, Compound, MakerDAO)
DeFi analytics dashboards like DeFiLlama (for comparing rates and security)
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Significant risks
Market downturns → liquidation of collateral
Errors or hacks in smart contracts
Fake websites (phishing is very common)
Network fees (gas fees, especially on Ethereum)
Overleverage (borrowing too much is the most common mistake)
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Simple summary
DeFi loans =
You deposit crypto → you lock it up → you borrow stablecoins → you manage the risk → you return the funds → you recover the collateral
