Protection against layoffs — cryptocurrency as a cushion

Disclaimer

This article does not constitute financial or legal advice. The information is provided for educational purposes only. Cryptocurrency operations involve high risks. Before making any decisions, consult with a certified financial advisor and tax professional in your jurisdiction.

Who This Article Is For

This is a practical guide for IT specialists and corporate sector employees who want to integrate digital assets into their emergency fund. These recommendations are general in nature and should be adapted based on the legislation of your country of residence (e.g., Russia, EU countries, USA).

Key Takeaways

Cryptocurrency can supplement, but not replace, a traditional emergency fund. The foundation of financial security is a fiat cushion covering 3–6 months of expenses. The remaining portion of savings can be diversified by including Bitcoin (BTC) and stablecoins (e.g., USDC) in the portfolio. A successful strategy requires the use of hardware wallets, a strict liquidity plan, and an understanding of tax implications.

1. Primary Risks of Cryptocurrency Savings

1. High Volatility. The value of cryptocurrencies can drop sharply, especially during periods of economic instability. Your safety net risks losing value exactly when you need it most.
2. Counterparty Risk. Keeping funds on a centralized exchange means trusting a third party. The bankruptcy of a platform (as in the case of FTX) can lead to a total loss of assets [1].
3. Operational Delays. Converting cryptocurrency into fiat money (e.g., dollars, euros) does not always happen instantaneously. Factor in time for KYC/AML checks (ranging from a few hours to several days) and bank transfer times (1–5 business days depending on the region and bank).
4. Regulatory Risks. Governments may impose restrictions on cryptocurrency operations, and banks may block related transactions.
5. Cybercrime. In 2023, $1.7 billion in cryptocurrency was stolen through hacks and phishing attacks [2]. Asset security is your personal responsibility.
6. Stablecoin Risks. Stablecoins are subject to the risk of losing their peg to the underlying asset (de-pegging). Their reliability depends on the transparency and quality of the issuer's reserves.

2. Practical Strategy for Creating a Reserve Fund

Step 1. Establish a Fiat Foundation

Before investing in cryptocurrency, create a financial cushion in a highly accessible form (cash, bank account). Its size should cover your essential expenses for 3–6 months. This is your primary line of defense.

Step 2. Develop a Diversification Strategy

Do not invest all remaining funds into cryptocurrency. Use a Dollar-Cost Averaging (DCA) strategy—buy assets in small amounts at regular intervals.

How to choose a portfolio structure:

• Conservative Portfolio: Suitable for those with low risk tolerance or large financial obligations (mortgage, family). The main focus is on capital preservation.
• Moderate Portfolio: Suitable for those ready to accept higher risk for potentially higher returns and who have a stable income to cover possible losses.

Asset	Conservative Portfolio	Moderate Portfolio
Fiat Funds (beyond cushion)	60–70%	40–50%
Bitcoin (BTC)	10–15%	20–25%
Stablecoins (USDC, USDT)	10–15%	10–15%
Ethereum (ETH)	0%	10–15%
Precious Metals / ETFs	5–10%	5–10%

Step 3. Ensure Storage Security

The Golden Rule: Not your keys, not your coins.

For long-term storage, use hardware ("cold") wallets (e.g., Ledger, Trezor). They store private keys offline, isolating them from online threats.

A seed phrase (12 or 24 words) is the master key to your funds. Never, under any circumstances, store it in digital form (in files, photos, cloud services, or messengers).

Seed Phrase Storage Method	Pros	Cons and Risks
Paper in a secure location	Simple and accessible.	Vulnerable to fire, water, and physical wear.
Metal plate	High resistance to physical damage.	Requires engraving tools; can be found.
Multisig (Multi-signature)	Highest security; requires multiple keys for a transaction.	Complex to set up; dependent on other parties.

Example of a 2-of-3 multisig wallet setup (e.g., via Gnosis Safe):

• Key 1: Your primary key (on a hardware wallet).
• Key 2: Held by a trusted family member or lawyer (on another hardware wallet).
• Key 3: Stored in a bank safety deposit box.

Any two keys are required to perform a transaction, which eliminates a single point of failure.

Step 4. Test Your Access Recovery Plan

Ensure you can regain access to your funds in a stressful situation.

Checklist for verification:

1. Use a clean device disconnected from the internet.
2. Install the wallet software and select the "Restore from seed phrase" option.
3. Enter your phrase and ensure access to the wallet and balances is restored.
4. After verification, delete the software from the test device.

3. Plan for the First 48 Hours After Termination

1. Assess Finances. Clarify the exact amounts and payment dates for severance and your final paycheck. Keep copies of all documents.

2. Revise Budget. Cut all non-essential expenses to maximize the lifespan of your fiat cushion.

3. Check KYC on Exchanges. Ensure your verification status (KYC) is up to date. If a corporate email or phone was used for registration, update the data immediately.

4. Perform a Test Withdrawal. Withdraw a small amount ($50–$200) from the exchange to your bank account. This allows you to verify the entire chain before you urgently need the money.

   Test Withdrawal Checklist:

   • Verify the linked bank account is active.
   • Check daily and monthly withdrawal limits.
   • Note the transaction processing time.
   • Check if the bank has questions regarding the deposit.

4. Ensuring Urgent Liquidity

Keep 5–15% of your crypto portfolio in stablecoins on a reliable, regulated exchange for quick conversion to fiat.

Withdrawal Times and Potential Issues:

• SEPA (EU): 1–2 business days.
• ACH/Wire (USA): 1–3 business days.
• Transfers within Russia: From a few hours to 1 business day (via P2P or exchangers).
• Issues: Banks may request documents proving the Source of Funds (SoF), especially for large or frequent transfers.

Alternatives to Exchanges:

• P2P Platforms: Direct exchange with other users. Requires caution.
• OTC Services (Over-the-Counter): For selling large amounts (from $50,000) with minimal impact on market price.

5. Choosing Stablecoins and Tax Accounting

How to Verify a Stablecoin's Reliability

• Audits and Attestations. The issuer should regularly publish reserve reports from independent auditing firms (e.g., Deloitte, BDO).
• Reserve Composition. Give preference to stablecoins whose reserves consist predominantly of cash and short-term US government bonds. This reduces market risks.
• Jurisdiction and Regulation. A transparent legal structure and operation within a regulatory framework increase reliability. For example, USDC (Circle) is regulated in the US, providing high transparency. USDT (Tether) is the largest stablecoin by capitalization, but its reserves and structure have historically raised questions from regulators, increasing counterparty risk.

Keeping Records for Tax Purposes

Cryptocurrency operations have tax implications that vary significantly by jurisdiction. To correctly calculate capital gains tax, you must record:

• The date, price, and amount of each asset purchase.
• The date, price, and amount of the sale.
• All associated fees.

To automate accounting, use services like CoinTracking or Koinly. Be sure to consult with a tax professional in your country.

Inheritance

Plan how your heirs will gain access to your assets. Include digital assets in your will and draft separate instructions with information about wallets and the location of the seed phrase. Entrust this to a lawyer or notary for safekeeping.

Conclusion

Cryptocurrency can serve as an additional element of savings protection, but only under the condition of strict adherence to security rules, diversification, and legal hygiene. A fiat cushion always remains the foundation of financial stability, while digital assets are merely a tool for managing risks in the long term.

Sources

1. Reuters. "FTX confirms ‘massive shortfall’ in first bankruptcy hearing," November 22, 2022. [Accessed: 05.25.2024].
2. Chainalysis. "The 2024 Crypto Crime Report." [Accessed: 05.25.2024]. According to the report, $1.7 billion is the amount stolen as a result of DeFi protocol hacks, centralized service breaches, and other attacks in 2023.