Cryptocurrencies don’t pay dividends like stocks but can instead provide an attractive yearly interest rate.
This yield can be incredibly enticing as we begin to see the cryptocurrency market mature. What was once considered a speculative fad is looking more like the biggest opportunity in decades.
This is in large part due to the emergence of yield in the space.
Before interest bearing wallets were a thing, holding Bitcoin or Ethereum long-term seemed silly. At the peak of a bull market, it was far more tempting to sell your holdings and wait for a bottom to emerge to buy back in.
A compounding investment
Today, there are wallets like Celsius.Network that are slowly changing things in the crypto space. By storing your cryptocurrency in their wallet, you can earn compounding annualized interest at very high rates. Furthermore, they can provide loans using your crypto assets as collateral for as low as 1% – a rate that is unheard of even in this low interest rate environment.
This encourages users to hold their assets. After all, should you sell, you won’t be earning interest until you reallocate back in. Additionally, if you need cash, you can simply take a loan and not have to sell assets which would incur a capital gains tax.
Let’s take a look at why you might want to consider earning interest on your cryptocurrencies and digital assets.
Crypto pays in-kind : reinvest by getting paid in crypto.
This is similar to how dividend stocks work if you were to reinvest the dividends. The value compounds. As you continue to reinvest the yield, your portfolio grows much faster than if you withdrew the yield and held the earnings in cash.
Earn in the crypto asset deposited
Earning in-kind means that you earn interest in the same cryptocurrency in your wallet. When you deposit Bitcoin in the wallet, you earn interest in Bitcoin on your Bitcoin. Eth on your Eth. Link on your Link. Dot on your Dot. Ada on your Ada. You get the point. You are not earning/will not be paid in U.S. dollars. Instead, you will passively grow your investment in the cryptocurrency you’re holding.
You can imagine how powerful this is when you consider the growth potential of the assets.
An uncorrelated asset class
With crypto, compound effects are amplified by the monetary rails of the crypto ecosystem not being dollar denominated. Cryptocurrencies aren’t tied to local fiat currencies in the way traditional stocks are. As a global 24/7 market running worldwide, its uncorrelated nature makes it hard to price predict. The market tends to follow the algorithmic patterns of Bitcoin.
The crypto ecosystem is attempting to build its own digital monetary network. Should it succeed, you could see it differentiate itself from the stock and bond markets. Right now, crypto and stocks seem to be relatively in-sync meaning when one drops the other does too. This could change as cryptocurrencies evolve and reach wide-scale adoption. The supply cap and deflationary nature of cryptocurrencies makes a strong argument they will be more resilient than stocks after reaching maturity.
High Yields – Stablecoins (USD) can earn 15% APY.
If you’re wondering what interest rates you can expect in crypto, consider this comparison. Traditional banks are paying about 00.10% APY right now. At Celsius, you can earn 15.00% APY on stablecoins, which are fiat backed digital USD coins synced to the U.S. dollar. For essentially the same risk as holding dollars in your bank, you can earn 100x more in crypto.
This illustrates the opportunity the crypto market offers. Even if you do not want to participate in volatile crypto markets, you can swap the money in your bank forand earn 100x more per year than you would otherwise.
What about regular cryptocurrencies? Those pay great too. If you want to participate you can earn handsomely:
|Cryptocurrency||APY (interest rate)|
What are the risks?
Undeniably, there are some risks to storing your coins with a wallet that pays interest.
Wallets that offer yield on crypto assets are lending their collective deposits to institutional companies that use the loan for various purposes. Of course, this process does create some operational risk to your coins but that risk is minimal with the right wallet provider.
This process of loaning your coins is similar to how banks today use our money. We feel safe thanks to FDIC insurance but we are trusting the bank and allowing them to do. Our assets deposited are essentially loaned to the bank and in return we should expect lower rates on borrowing and other rebates. However, banks tend not to pass much of their wealth to users but opt for rewarding share holder stocks.
Crypto wallets that offer interest are performing the same service as the banks. Now being replicated in crypto, they pledge it’s a safe process and have successfully transitioned many to a digital asset world. These companies have also survived several price depreciation events as cryptocurrencies were evolving. They continued to grow despite those prior setbacks in the market.
A closer look at Celsius
CEO Alex Mashinsky is at the helm of Celsius, having started 2 prior multi-billion dollar businesses. Celsius now manages over 10 billion dollars in assets and it is still running strong. They recently announced a self insurance plan that will protect your deposits and provide assurance your assets are safe. In addition, a crypto-back rewards credit card is in the works. Their track record supports having managed this service with very few issues and now we see other companies entering the space and competing. The rates offered, even for no-risk coins like stablecoin USDC, are making a strong argument crypto treats their users better than the banks.
What about ‘not your keys not your crypto?‘
Not your keys not your crypto is a long held saying in the cryptocurrency community still touted by users who do not believe in storing their assets on exchanges or digital wallets.
While I think theargument has merit and many users will choose to take their holdings off-grid, I don’t think it’s relevant for the vast majority of people.
Central exchanges are a necessity
If you want your mom or grandma to hold crypto, they need an easy and convenient place to do so. Exchanges and digital wallets are that solution. It’s highly unlikely that the world will be convinced by hardware only wallet methodology. Some exchanges will emerge as trustworthy counterparties.
While managing your own private keys and storing crypto on an ultra-secure hardware wallet is the safest solution possible, it’s not the ideal solution for bringing crypto to the masses. As the cryptocurrency revolution broadens, centralized exchanges will be on the front lines converting new users to the ecosystem.
Higher yields through interest payments is just one way these wallets offer a strong advantage over self-storage.
No lock ups or redemption fees necessary.
Given the quality of companies that have emerged in this space, there’s no need to accept lock ups or redemption fees on assets. There are several places to earn crypto interest safely without having to lock or sign it away for any amount of time.
At Voyager you can withdraw, transfer, sell or earn interest through the Celsius API. There are no lock ups, fees or limitations. You can sell in an instant with active trading and the power of Celsius interest built-in. This is the best exchange to buy assets and store the temporary ones if you are considering taking profits.
Celsius takes the crown as the best digital wallet for storing coins long-term. Their low rate crypto-collateralized loans and credit card rewards can only be accessed by storing your coins with them directly. Any holdings on Voyager won’t apply. Celsius is also one of the safest and most trusted wallets in the space.
Gemini does have fees and technically no lock up period, though their redemption process on assets can take several days.