Digital Asset Interest Accounts Proliferating as Negative Rates Loom Large

A year later, COVID-19 is still wreaking havoc on world economies.  While digital assets have thrived, entire industries have been upended as spending habits and priorities change.  Effects have been so great that many governments have resorted to drastic measures in attempts to ‘stimulate’ economic growth.

Much has been made over the ‘printing-presses’ and the seemingly never ended supply of FIAT they produce – a fixed supply is after all one of the major draws towards assets like Bitcoin.  This however is not the only tool available to governments and central banks in the on-going stimulus effort.  A second, and arguably even more noteworthy step is the reduction of interest rates.

In the United Kingdom, the Bank of England has just announced that it has given commercial banks 6 months to prepare for potential negative interest rates.  If this eventually occurs in the UK, it will not be the first example of a nation to take such steps.  Others such as Japan, Germany, and more, have done so in the past with varying levels of success.

Negative Interest

In a world that makes sense, institutions charge interest on money which is lent to borrowers, while giving interest to those which maintain deposits.  Negative interest rates typically result in a reversal of this structuring.  This means that banks will pay clients to borrow money, while charging for funds stored in savings accounts.

The purpose of this is simple – encourage consumer spending.  Unfortunately, this means that anyone looking to earn passive income on savings is out of luck.  It also means that as banks would be on the hook for paying customers to take out loans, they would be more restrictive on who is approved, limiting borrowing opportunities to those with top credit scores only.

Digital Asset Interest Accounts

While negative interest rates have yet to hit North America, they are perilously close.  For example, since the beginning of 2020, the Bank of Canada has dropped interest rates from 1.75% to the 0.25% which they sit at today.  This is not expected to rise any time soon, with the Bank of Canada recently stating that it would work to keep low rates until at least 2023.  Things are no better in the United States.

So what do you do if you are a saver, looking to earn passive income on your holdings?  Thankfully, with the resurgence of the digital asset sector, a new type of platform is giving savvy individuals a means to fight back against dropping interest rates – digital asset interest accounts.

These are offerings from companies which provide clients with high-interest returns on savings accounts holding digital assets.  The following are examples of the newest, and largest digital asset platforms which offer such accounts.

Gemini Earn

A product of the Winklevoss run platform ‘Gemini’, this new service titled ‘Earn’ is expected to be the first of its kind available to all 50 states.

Straight out of the gates Gemini Earn boasts one major benefit over industry top-dog BlockFi.

Supported Assets – Gemini Earn? 26.  BlockFi? 8.

Gemini CEO, Tyler Winklevoss, states, “Today's investors know that a smart, diverse portfolio includes crypto — it's an investment in their future selves…We designed a program that allows our customers the ability to generate a real return on their crypto holdings without having to sell one of the best performing asset classes of the decade.”

BlockFi

While Gemini Earn may have BlockFi beat in its scope of supported assets, BlockFi remains the more intriguing service for more focused investors, as it generally boasts superior rates.

Bitcoin Rate        – Gemini Earn? 3.05%. BlockFi? 3-6%

Ethereum Rate  – Gemini Earn? 3.05%. BlockFi? 5.25%

Interestingly, Gemini’s very own stablecoin ‘GUSD’ is not listed as a supported asset through Gemini Earn.  BlockFi however provides a rate 8.6% on the popular stablecoin.

Interest is compounded and paid out monthly vs. daily on Gemini Earn.

When BlockFi began offering these services, digital asset lending platforms were more of a novelty.  The company has managed to establish itself as a trusted platform however, through various high-profile affiliations, strategic partnerships, and reliability.  The result has been wildly profitable for not only its clients, but the platform itself with a 2020 revenue of roughly $100,000,000 USD.

Safety First

The aforementioned lending platforms are by no means the only ones available.  They simply represent the newest in Gemini Earn, and the largest in BlockFi.  Despite their popularity, it is important to remember one key detail – by using these platforms, you are handing over control of your assets.

Yes, the potential to generate interest during a time when banks are turning to negative rates is quite enticing.  These companies are not typically backed by the Federal Deposit Insurance Corporation (FDIC), meaning that if they go ‘belly-up’ clients may not get their funds back.  While reputable companies like Gemini and BlockFi each utilize stringent storage measures to prevent hacks and theft, there still remains a level of risk when entrusting funds to another party.

The bottom line

If you check all of the following boxes, then a digital asset lending platform may represent a great opportunity to grow your holdings.

• Maintain a HODL mindset over trading
• Understand and accept the risk of potential for lost assets through uninsured lending
• Desire to generate passive income