Currently the 500 MCO tier is sort of the sweet spot for most users where a lot of valuable perks kick in. When I first purchased MCO it was under $3 USD, so going straight to the 500 tier was an obvious choice. I was planning to put some Stablecoins and Bitcoin into earn, so the added 2% bonus in-kind in earn, plus the 3% card cashbacks and Netflix reimbursement made the choice economically beneficial quite quickly. Less than a year later the benefits have provided me a larger return on investment than if I had done otherwise.
I have been eyeing the upgrade to the 5000 tier, but I wanted to do an analysis of what sort of upgrade strategy makes sense to optimize ROI weighted against risks and if I'm even the right candidate for such an investment. With the price of MCO being higher, it's not such a clear decision. I will outline my thought process below.
Assumptions - These are the assumptions that I am working with for my analysis. Working with a different set of assumptions will affect the decision making process differently for different people.
- Decision making process involves only MCO, Stablecoins (Fiat), and Bitcoin
- Bitcoin being held was bought at a low price and converting to MCO will cause a taxable event
- There is no monetary benefit to Prime because I've been grandfathered into prime from an old family members account
- There is no monetary benefit to Expedia because I do all my travel spending on my Chase Sapphire Reserve that offers robust travel benefits and protections.
- The monetary benefit to CDC Private is not clear at the time
- Time frame of one year
- Interest rates on the platform do not drastically change over the next year
- MCO and BTC change fluctuate roughly in lockstep
- Dollar figures below are arbitrary for example purposes only
Based on the above assumptions we can now look at different upgrade pathways and see which options make the most sense. This thought process is a place to start and can be adjusted to each person's individual case.
Stablecoin (Fiat) to MCO pathway
At today's price of ~$4.85 USD at time of writing, it would cost $21,825 USD to upgrade directly into the 5000 tier by buying 4500 additional MCO. This gives additional benefits of 2% in earn and 1% on card.
The variables we need to look at to find out if this makes sense over the next year are: assets in Earn and annual card spend.
The opportunity cost of putting the money into MCO is a 6% yield on $21,825 (12% in Earn minus 6% staked in MCO), or $1,309.50.
We also open ourselves up to exchange rate volatility, there is a very real, non-0% chance that the crypto market collapses, or that MCO itself collapses in value. There is also a chance it will go way up. If you are looking to hold the MCO, or crypto in general, for longer periods of time, we need to sort of normalize the projected trend to figure out ROI. That means ignoring big jumps and drops, or retroactively thinking you could have made or lost money by trading in and out… that falls under trading and speculation. In general, most of us think the crypto market is going up, but by how much and how fast are variables that need to be considered in how exposed to crypto you want to be
In order to make this pathway a positive ROI, we need to make an additional $1,309.50 through the added benefits in Earn and card spending over the course of one year. What does that look like?
Assets in Earn*0.02 + Card spend*0.01>1,309.50 Examples:
- Card spend: $1,000; Earn: $64,975
- Card spend: $5,000; Earn: $62,975
- Card spend: $10,000; Earn: $60,475
If you don't have roughly $60-65k in Earn, upgrading to 5000 Tier makes very little sense IMO.
Full Account Examples (Assuming today's crypto prices):
- Case 1 - 500 MCO staked; $100,000 Stablecoins in Earn; $100,000 Bitcoin in earn; $3000 card spend
- 500 * $4.85 * 0.06 = $145.50
- $100,000 * 0.12 = $12,000
- $100,000 * 0.055 = $5,500
- $3,000 * 0.03 = $90
- Total annual rewards: $17,735.50
- Case 2 - 5000 MCO staked; $80,000 Stablecoins; $100,000 Bitcoin in Earn; $3000 card spend
- 5000 * $4.85 *0.06 = $1,455
- $80,000 * 0.14 = $11,200
- $100,000 * 0.075 = $7,5500
- $3,000 * 0.04 = $120
- Total annual rewards: $20,275
Case 1 and 2 are very similar in total assets, but case 2 provides the better return after one year ($20,275 - $17,735.50 = $2,539.50) at the cost of being more exposed to crypto.
Bitcoin to MCO pathway via Drip
Another option to consider is upgrading to the 5000 tier via Bitcoin. I mention "Drip" in the header because I imagine most people able to do a lump sum conversion would encounter a taxable event and would be less inclined to go that route. Utilizing a drip format will upgrade on a longer time scale, but result in negligible taxable gain. It also keeps crypto exposure at roughly the same level throughout the process.
The benefits from going to MCO from BTC is a higher interest rate for MCO being staked at 6% vs BTC in Earn at 5.5%; I also assume CDC will be able to keep the 6% on MCO longer than they can keep the rate high on BTC. The drawbacks are less liquidity on MCO, potentially more volatility, and potential loss of value relative to BTC in Satoshis (we'll ignore the last point since we are assuming a similar sat ratio over time).
Another thing to mention, if we want to upgrade over the course of one year, BTC holdings need to be pretty sizable at $400,000 That's a little unreasonable for most people, so let's assume a smaller holding of $100,000 btc like the two cases above. This will take three years to accomplish and the equation gets a bit more complicated in this situation.
- 500 MCO staked at 6%
- $100,000 BTC in Earn at 5.5%
- Proceeds from both go immediately into MCO 3 Month Earn at 8%
Basically if you take the above situation and plug it into a compound interest calculator, compounding quarterly, it takes almost 3 years exactly to drip your way into the 5000 tier. We can mostly ignore any change in crypto USD value as long as the MCO/BTC ratio stays similar.
If you definitely want to go to the 5000 tier, the question becomes purchase lump sum via Fiat or drip via crypto.
The opportunity cost of dripping is the lost 2% gain in earn over the course of 3 years (which as you'll see below, could be significant if the market jumps quickly at which point purchasing via Fiat becomes prohibitively expensive). But the benefit is that you maintain your current crypto exposure in the case of a major bear market where you could potentially purchase via Fiat at a much lower price.
Exit Strategy
I think it's important to think about an exit strategy. In my opinion, upgrading to the 5000 tier only really makes sense if you are having a lot of assets in Earn. The added 1% on card spend and other perks pales in comparison to the added 2% on Earn with a large amount of assets. It's also my opinion that MCO should only be a small portion of a crypto portfolio. Regardless, if MCO is your main holding you are betting on the crypto market going up, because the added 5000 tier benefits won't comparatively amount to much over a year anyway.
If crypto prices stay the same the benefits to holding MCO stay flat, but as crypto prices rise, the incentives change. Imagine we go on a huge bull run and the market goes up 20x. I bet a lot of people will want to rebalance and cash in some of that profit. It's quite possible holding 5000 MCO becomes too big of a risk for the benefits received.
What's nice is that CDC seems to have thought about the optimal profile for people to get to the 5000 tier level...like I stated above, people with significant assets in Earn.
Imagine the person in Case 2 above in an environment where the crypto market shoots up 20x.
- 5000 MCO = $500,000
- $80,000 Stablecoins = $80,000
- $100,000 BTC = $2,000,000
In this situation, it makes sense to rebalance your portfolio and take some earnings off the table. However, it actually makes a lot of sense to keep the 5000 MCO staked and rebalance away from BTC into Stablecoins. Look at the yearly earnings of different options below:
- Leave as is: $191,200
- Rebalance $450,000 from BTC to Stablecoins maintaining 5000 MCO tier: $220,450
- Rebalance $450,000 away from MCO to Stablecoins dropping to the 500 MCO tier: $176,600
As you can see, losing the bonus 2% in earn cuts your profit over the course of a year.
CDC was quite thoughtful in changing the award structure for the added 2% in Earn. It should keep early adopters from leaving if the market goes up, and should actually attract newly minted crypto whales as they rebalance out of other cryptos. This should keep the MCO price strong for a long time and give confidence to people investing in MCO.
Conclusion
I think upgrading to the 5000 tier can make a lot of sense for certain people. But after reaching the 5000 tier I would probably immediately cash out all rewarded MCO to Stablecoins to compound at a higher interest rate and just maintain the 5000 level. Unless there are some dramatic new rewards for the 50,000 level I don't see the value proposition to go for Black. Perhaps an additional 2% in Earn, but that is probably not sustainable to the company.
Let me know what you think, or if I made any mistakes.
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