Why earning interest on your crypto might be in your… interest
BlockFi and other similar projects are letting you put your cryptocurrency holdings to work
I’ve talked a lot about crypto on this blog with NFTs and my guide on how to buy Bitcoin. If you’ve been following along, you might find yourself with a few Bitcoins or Ethereum tokens lying around. You might be wondering to yourself, “what now?” Well, this blog will answer one possibility.
Most people are familiar with the concept of earning interest on money sitting in a bank account. The highest yield savings accounts will sport rates around 0.40–0.50% APY.
But, what if I were to tell you there was a way you could earn up to 9.3% APY on your money? That’s exactly what you can do with BlockFi.
BlockFi is a fantastic service that utilizes the growing interest in the crypto market to offer some truly incredible interest rates that you can access just by depositing and holding your available crypto on their site.
Now, as you can see from the rates above, there are some truly staggering numbers that one could earn just from holding money on the site. You may be wondering, however, what is USDC? USDT? Those are stablecoins.
Stablecoins are a relatively new type of cryptocurrency that provide a stable and secure version of fiat money, all while mitigating the traditional volatility associated with crypto. Coins like USDC and USDT are always worth exactly $1 per 1 coin. They achieve this by backing the coin by holding actual USD (or an equivalent asset) according to the market cap of the coin. This is an oversimplification, but essentially the coin is kept “stable” by being “backed” by an equivalent amount of actual, real USD. I may go further into this subject in the future, but this level of explanation is sufficient for understanding the relation to BlockFi.
The implications of being able to gain 9.3% APY on USDT, as shown above, are huge. Theoretically, you could transfer every single dollar in your current savings account and put it into USDT, and earn a massive amount of interest.
How do they do this?
So, how is BlockFi able to achieve massive rates like this? It’s actually really simple. Similar to a bank offering you a high-interest rate because they loan out your money, BlockFi achieves its rates by offering crypto-backed loans. The concept is insanely simple, and because of the volatility and price fluctuations of crypto, they offer much higher rates.
Downsides?
There are, of course, a few downsides. They aren’t major, and honestly, this whole situation has a massive upside given the amount of institutional investment in crypto lately. The main downside is that these accounts are not FDIC-insured. This means that if BlockFi were to suddenly lose all of its money and fail, your money is not going to be reimbursed by the government. However, and this is a big however, BlockFi has some of the strongest selection of investors backing them that I’ve seen out of almost any crypto project.
This selection might not be as strong as the US government, but it is quite close in the way that it portrays security and strength for BlockFi.
Another possible downside could be the volatility of crypto in general. If you are investing Bitcoin or Ethereum, you will be subjected to the rise and fall of these cryptocurrencies. The crypto market is volatile, and the interest that you earn from BlockFi is paid out in the currency that you invest. This has an upside and a downside. If Bitcoin, for instance, goes up, the interest that you’ve earned is now worth more than it was originally. If it goes down, it’s then not worth as much. I am, however, generally optimistic about the crypto market regardless of any fluctuations. I proudly have a part of my crypto portfolio on BlockFi (specifically Ethereum), and will continue to hold it there as I see a massive amount of potential growth in the space in the years to come.
What’s the point?
As always, I like to end these articles with what I see the point being with what I’ve talked about here. BlockFi and high-yield crypto savings accounts are incredible concepts that can give some great benefits to long-term crypto investors. I was originally introduced to BlockFi by a YouTuber that I follow, Andrei Jikh, who frequently urges his viewers and subscribers to “put their money to work” whenever possible. I wholeheartedly agree. It’s a no-brainer to gain some passive income whenever possible, and if my crypto is just sitting there, why not? I’m investing in crypto for the long-term because I believe in it, and I think that it is going to continue to change our financial institutions in the years to come. BlockFi is an incredible tool for any crypto-investor to have in their tool belt. I’ll always be a fan of any company that embraces and innovates within cryptocurrencies and the crypto market.