Unfortunately for most investors, there’s a loss in the traditional savings scheme, as not only does it have less than 1% yearly rate of interest, you also have to minimize some of that increase due to the inflation taking place. Because of this, investors are turning their attention towards other methods of making more money, emphasizing on assets that undergo appreciation over time. Over the years, Bitcoin along with other cryptocurrency solutions have developed markets for lending that use the power of blockchain for loan processing.
Step 1: Make an Account
People are flocking to cryptocurrency lending platforms, as they provide a more conventional method of making Bitcoin earnings via interest through savings accounts. Different investors and financial institutes are using cryptocurrency as a collateral, and lend Bitcoin from them as well.
BlockFi, Celsius and Nexo.io. are some of the most renowned accounts for crypto that allow you to profit on Bitcoin interest. Another popular option is Wrapped Bitcoin (WBTC), which is basically using Bitcoin on Ethereum’s Blockchain. You don’t even need an account for WBTC, and you can earn interest by utilizing the various services available on this blockchain. All you need to do is add the Ethereum wallet on some decentralized platform such as Compound to start earning the interest on WBTC.
These platforms are the most convenient option for newcomers to make interest on their cryptocurrency. Simply sign up, add some funds to your account and begin making interest. You’re also free to extract your investment at any time as most accounts don’t have minimum lockup times.
Step 2: Pay Attention to The Interest Rates
The interest rates vary from platform to platform, so depending on your choice, you’ll earn a different interest amount on your savings account. While most platforms for Bitcoin provide anywhere from 3% to 8% yearly rate of interest, there are some exceptions. Most commonly, BlockFi has tiers of interest rate, which gradually change depending on the amount of Bitcoin you invest in the platform. Typically, these interest rates go down as the investment amount goes up.
As there’s generally no kind of minimal limit that you require in order to start accumulating an intertest rate, so you’re free to invest as you please into your account. These platforms generally have floating rates, which can fluctuate depend on the supply and demand of cryptocurrency in the market. These fluctuations are fairly rare but still within the realm of possibility. It’s recommended to investigate all your options and go with the best interest rates for the most profitability overall.
Step 3: Update Your Portfolio for Bitcoin
While not a common feature in all lending platforms, some exceptions such as BlockFi allow you to directly purchase cryptocurrency by wiring to your bank. Simply adding your bank details to your platform account details. With these details added, you’re free to start purchasing Bitcoin and accumulate interest for your account.
Nexo.io on the other hand only allows you to deposit crypto on its own platform. In case you don’t already have any Bitcoin, you’re required to create an account on some cryptocurrency exchange.
Coinbase and eToro are some of the easier platforms, enabling newcomers to purchase Bitcoin more conveniently. By buying WBTC on Coinbase and adding it to any Ethereum wallet, you can develop interest on them as well. Coinbase Wallet and Metamask are some of the go-to wallets for Ethereum, due to their ease of use and decentralized applications.
Connecting your wallet to Compound will initiate the process of developing interest for WBTC, right after you’ve deposited them into the ETH wallet of your choice.
Compound Interest Operation for Bitcoin
Savings accounts provide you two kinds of interests, simple and compound interest. You earn solely on principal investment in a simple interest scheme. For compound interest, it includes principal investment and interest you’ve previously had. Naturally, compound interests lead to faster growth as compared to those of simple interest. Compound interest gets added at specific intervals, which are variable for the account you go with.
Shorter intervals mean more profit for you due to the added interest top of your already earned interest once on the deposit to your account. BlockFi has compound interest monthly, while other platforms have compound interest on a daily basis or weekly basis.
The difference in the earning scale for compound interest on a daily or weekly basis is not huge, but this becomes more substantial when an interval is monthly or quarterly. The interest ends up becoming significant in these two schemes.
Advantages and Disadvantages
Compared to the average savings accounts, you can make at least quintuple that money with a bitcoin savings account. You’ll be earning in Bitcoin, which routinely see an appreciation in value over time. On the flip side, Bitcoin is fairly volatile, which means that things can swing the other way as well and you could potentially lose money. While the cryptocurrency doesn’t see as much of a crash to the point of total loss with interest schemes, it’s something to be aware of.
Should You Rather Trade or Earn on Interest?
Trading Bitcoin or any crypto in general is a high-risk maneuver. HODL or trade, you’ll have to figure out with the help of signals and other financial analysis that you make over time. It’s a great way of making a lot of money at once and cashing out, but the risks attached to it are fairly significant. On the flip side, earning interest over crypto is a safer methodology, where you continue to earn regardless of the various fluctuations within the market.
Most traditional savings accounts earn less than a 1% annual interest rate, and after accounting for inflation, this money is actually losing value. Investors are looking for better ways to earn interest on appreciating assets, and Bitcoin and other cryptocurrencies have developed more efficient lending markets that utilize blockchain technology to process loans.
Get an insight on getting started with BlockFi only at Urban Crypto!