How to Earn Interest On Crypto | 5 Insights to Build Your Crypto Wealth

Cryptos are an emerging asset class and present an opportunity to earn more interest on your cash or grow your crypto holdings. Learn how to earn interest on your crypto and trailblaze a new path to investing.

how to earn interest on crypto

Over the last year, the Federal Reserve has cratered interest rates and began printing money at an unseen rate. Saving cash at the prevailing rate of 0.30% APY (annual percentage yield) yields a negative real return, which disincentivizes holding cash. Even our high-yield savings accounts (HYS) are of no use. As a result, people expect higher inflation rates to eat away at the dollar’s value and erode the value of their savings. What can you do with your cash?

how to earn interest on crypto

1. Crypto is an Alternative to Fiat

Bitcoin, Ethereum, and other crypto tokens promise to reshape how we conduct our financial lives. Through their decentralized networks, cryptos do not have a central authority and govern by consensus. Instead, blockchain technology records all transactions providing a public, immutable ledger of activity.

Crypto is on fire — the leading currencies have hit new record prices and attracted high institutional and corporate investment levels. Every week I introduce another interested friend to the crypto sphere and how to get started. One of the most interesting developments is the rise of crypto lender services.

Enter crypto lenders, BlockFi and Celsius, offering between 7.5% to 8.8% interest on your dollars turned stablecoins. With them, you can turn your fiat cash into crypto-cash “savings accounts.”

BlockFi VS Celsius Network

2. How To Earn Interest on Cryptocurrency The Crypto Savings Account

Since its mainstream debut in 2017, the cryptocurrency ecosystem has evolved considerably and been legitimized through large investments by institutional investors. Companies like BlockFi and Celsius are a part of that evolution. They act as crypto “banks” where you can deposit, withdraw, and earn interest on your funds. You can take USD loans out against your crypto holdings as collateral. Like regular banks which write loans, crypto lenders loan out your coins to large institutions in need of crypto, mainly exchanges or institutional funds.

This lending is secured via collateral put up before the loan goes into effect. They pay interest on their loans, of which a portion gets paid back to you. These crypto lenders offer their highest rates on USD-backed stablecoins, GUSD (Gemini USD), and USDC (USD Coin), tied to the US dollar at a 1:1 ratio. Crypto lending presents an opportunity for investors to earn good amounts of cash.

Interest Rates & Savings Accounts

These coins garner high interest rates as they are USD-denominated and fast to transact with, resulting in increased liquidity and rapid transaction settlement times. Speed and liquidity are essential to operate in the crypto space, where markets never close. Additionally, tying them to the USD offers a stable and accepted reference point to buy and sell the more volatile coins. BlockFi offers 7.5% APY, and Celsius offers 8.88% APY on these coins, respectively. Every month:

  • BlockFi earns 0.625%
  • Celsius earns 0.74%
  • HYS account (0.50% APY) earns 0.0004%

Through crypto banking, you can earn over 1775x more on the same money sitting in your savings account. In a simple comparison, saving your stablecoin with a lender is like a turbo-charged savings account.

Photo by Samuele Ericco Piccarini on Unsplash

If you are a hodler of common cryptos like Bitcoin or Ethereum, you can make around 6% and 5% APY. The interest is paid out in-kind, so your holding of that coin increases. As the price of Bitcoin and Ethereum appreciate, it’s nice to see your interest do the same.

BlockFi offers the unique feature to earn interest in a currency of your choosing. As of this writing, I chose Bitcoin, which is widely becoming recognized as a store of value. Earning interest in an appreciating asset rather than an inflationary one is pretty cool and has challenged me to rethink my expectations around saving and investing.

Celsius offers higher yields but does not have a flex interest option. Therefore, if you deposit money onto the platform, I recommend buying large quantities from an exchange and transferring it into Celsius. Once your coins are on the platform, hodl for a time to make back your transfer fees.

BlockFi and Celsius are built by hodlers, for hodlers, and reward a long-term mindset and a patient outlook — much like the stock market. This comparison led me to see that as unique investment vehicles that compound and yield a return, much like the stock market.

3. Intro to Stablecoins

Gemini US Dollar (GUSD)

GUSD was created by the Winklevoss (of Facebook fame) owned crypto exchange Gemini. Launched in 2018, GUSD is an ERC20 token that operates on the Ethereum blockchain and adheres to its programming standards to ensure consistency of the smart contract system. GUSD’s smart contract system is publicly audited by Trail of Bits Inc, which reviews the security and integrity of the codebase.

Each GUSD is backed 1:1 by fiat dollar deposits and has approval from the New York Department of Financial Services (NYDFS), making it one of the first regulated stablecoins. Gemini’s 1:1 coin to dollar reserve claim is publicly audited monthly by the accounting firm BMP LLP to ensure confidence in its operations. Gemini positions its stablecoin as a bridge between the crypto and traditional finance worlds to ease connections between them. Gemini exchange automatically converts your US dollar deposits to GUSD when you send them to other wallets.

US Dollar Coin (USDC)

With 25 billion coins in circulation, US Dollar Coin (USDC) is backed by a 1:1 reserve of fiat US dollars that can be redeemed for coins. It’s one of the leading regulated stablecoins and was used for $700 billion of transactions last year. The USDC project is governed by Centre and Coinbase (one of the most used cryptocurrency exchanges), which monitor the standards and protocols that form the coin’s backbone. Circle is the main operator for USDC.

Much like GUSD, USDC’s reserves are publicly audited by renowned accounting firm Grant Thorton LLC. Both GUSD and USDC emphasize their compliance with US law and transparent organizations setting them apart from other stablecoins.

Tether (USDT)

The original and most popular stablecoin in the crypto market is Tether or USDT. Its website claims the same selling points as the coins above, including stability, transparency, and widespread integration. However, it faces widespread skepticism and investigation into its conduct. For instance, there is renewed skepticism over Tether’s cash reserve claims as the market learned it holds short-term debt (e.g., loans) and investments which it had not previously disclosed revealing it does not back its currency with a 1:1 ratio with the US dollar.

Additionally, it did not disclose the debt ratings, which would reveal the quality of its balance sheet.

It has been investigated by the New York Department of Financial Services and has garnered skepticism due to its close links to the Bitfinex exchange. In short, Tether operates like a bank without the oversight and regulations that govern banks in the traditional finance sector. Comparatively, the other two tokens come with lower risk.

If you pursue these stablecoins, we recommend conducting your due diligence on which coins to use as an investor does before buying any asset. Not all stablecoins are created equal.

4. What’s the Catch?

There are two parts to learn about how to earn interest on your crypto. The first is to earn it and the second is to keep it safe — crypto lending is not without its risks and downsides.

Cryptocurrency Risks

There is a risk of a hack, market volatility, and no FDIC insurance. As a young asset class, cryptocurrencies are as risky as they come. However, the high rates offered above match the S&P 500’s average annual returns, underscoring that getting into crypto is more akin to investing rather than saving.

Personally, this level of risk does not deter me as I apply a long-term mindset and only put in money that I can afford to do without, similar to how I view investing in the stock market.

Hack Risk

There is a risk of a hack, market volatility, and no FDIC insurance. As a young asset class, cryptocurrencies are as risky as they come. However, the high rates offered above match the S&P 500’s average annual returns, underscoring that getting into crypto is more akin to investing rather than saving.

Personally, this level of risk does not deter me as I apply a long-term mindset and only put in money that I can afford to do without, similar to how I view investing in the stock market.

diversify my portfolio across different asset classes, with crypto as the riskiest. In this way, I am not overexposed to the fluctuations in the crypto space and have other investments to earn a return. In addition, good diversification protects against the downside risk of any one asset class not performing well.

Also, if you are new to saving and investing, then crypto may not be right for you until you have a solid foundation.

RISK

Storing Crypto in One Place

Storing your crypto in one location poses a security risk and leads to lower interest rates. Crypto lenders use a tiered interest rate system where rates decline the more you hold a specific coin. For instance, Blockfi’s interest rates start to fall if you hold more than 0.5 BTC or 15 ETH, respectively.

Therefore, it’s better to store your crypto in multiple places to protect your coins, even if it means sacrificing a bit of interest yield. You can enable additional security measures in each app’s settings to provide extra protection and alerts.

Also, both lenders have insurance on their crypto deposits, and Celsius is working on its own self-insurance option that will release soon. Note that each lender is subject to change their interest rates at their discretion for Celsius, it is weekly, and for BlockFi, it is monthly.

Stablecoin Crash, Regulatory, and Rate Risks

Stablecoins, like any asset, are subject to supply and demand in their respective markets. As a result, they are riskier than holding the actual US dollar. As they are traded on exchanges, the value of a stablecoin can decrease below its $1 equivalent. Regulatory risks exist as the Fed or US government can create laws that affect the legality of such coins. However, these risks are lower than what an investor may initially believe as these popular stablecoin firms maintain publicly audited reserves and strive to comply with laws.

There is risk in changes to interest rates, which are inevitable with the volatility of the cryptocurrency markets and cloud long-term expectations on returns.

Delay to Send or Receive Funds

Deposits and withdrawals to a regular bank account can take a few days or up to a week. Currency conversion, liquidating funds, and other processes take time to execute. It’s best to store your emergency funds in a more accessible place.

5. Why It Matters

Since debuting in 2010, Bitcoin and cryptocurrencies have facilitated a massive, unanticipated transfer of wealth and provided inroads to wealth generation.

The rise of crypto lenders has institutionalized the cryptosphere and made it more accessible to the average person. They offer a unique opportunity to earn high returns and beat inflation in a way that would almost certainly never happen in the traditional banking system.

The opportunity to earn interest on crypto assets or stablecoins can become an additional income source, especially as the returns compound over time helping the average hodler invest. In addition, users can take cash loans against their own crypto assets with no worries about credit checks.

As an emerging asset class, cryptos have untapped potential as they experiment with new technologies and use cases. Accordingly, they come with a high risk that should be factored into every person’s unique financial situation. If you want to take what you’ve learned about how to earn interest on crypto, try it out and use my links below, and we both get free crypto!

  • BlockFi — Earn $10 in free BTC after depositing $100 in the first month.
  • Celsius — Earn $40 in free BTC after depositing $400 or more.

Frequently Asked Questions

Q: What kind of products and services do the crypto lenders offer?

BlockFi and Celsius each offer various products and services to get value out of their deposits of crypto assets. BlockFi’s product list includes:

  • BlockFi Interest Account (BIA) account where you deposit your cryptocurrency for lending to institutions and earn interest that is earned daily and paid out monthly. You can earn interest in the deposited crypto assets or crypto of your choice (for a ~1% fee).
  • BlockFi Trading you can buy, sell, or convert cryptocurrencies using your crypto assets. However, note that the prices will deviate from what you see on exchanges like Coinbase due to the fees spread that BlockFi charges. For average users, it is cheaper to buy, sell, and exchange cryptocurrencies on an exchange site.
  • Crypto-Backed Loans you can borrow fiat currencies against your crypto assets at interest rates as low as 4.5% APR, as of this article’s writing. You don’t have to sell your crypto to get cash.
  • Credit Card a new, no-fee Visa credit card that allows you to earn 1.5% in BTC for every purchase and increases the interest rate on your deposits. Find more details here.

Celsius’s products include:

  • Earn an account where you deposit cryptocurrency for lending and earn interest that is accrued daily and paid out weekly. The interest rate can change weekly.
  • Borrow you can borrow fiat currencies against your cryptocurrencies at 1% APR one of the lowest rates around. There are no origination fees and opportunities to refinance.
  • Pay Imagine Venmo or Zelle but for cryptos. You can pay and receive cryptos from other Celsius users in-app.
  • Credit Card Celsius is developing its credit card with an unknown feature set.

Q: What is decentralized finance (DeFi)? How can I get involved in it?

The DeFi space is one of the flagship, high-growth spaces in cryptocurrency, especially for Ethereum that promises to reinvent money markets. In the DeFi space, you can buy, sell, or exchange crypto in decentralized cryptocurrency exchanges that exist outside of the main ones. You can borrow or lend your crypto through decentralized lending pools (e.g., Aave or Compound).

They can pay a higher yield than the lenders we covered earlier, but that comes with extra risk. The lenders we reviewed here are Centralized Finance or CeFi solutions, which added protection and accountability. Some DeFi solutions can be scams as well. Note that Celsius uses several revenue streams to grow and maintain its yield, including DeFi protocols.

We are not financial advisors. The content on this website and our YouTube videos are for educational purposes only and merely cite our own personal opinions. In order to make the best financial decision that suits your own needs, you must conduct your own research and seek the advice of a licensed financial advisor if necessary. Know that all investments involve some form of risk and there is no guarantee that you will be successful in making, saving, or investing money; nor is there any guarantee that you won't experience any loss when investing. Always remember to make smart decisions and do your own research!

1 thought on “How to Earn Interest On Crypto | 5 Insights to Build Your Crypto Wealth”

  1. This was an awesome read. While I’ve been loosely following the crypto market for a while, I had no idea these types of investments/interest-bearing accounts even existed in this space. Thanks!

    Reply

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