How Investors Earn Interest On Bitcoin With High-Interest Crypto Accounts
One area of crypto — high-interest accounts — has the attention of both investors and regulators.
These accounts let investors earn interest on Bitcoin and other cryptocurrencies with 2-6% plus returns — much higher than the rates offered in traditional bank accounts.
How Can Investors Earn Interest On Crypto Like Bitcoin?
Investors can deposit their crypto in popular platforms like BlockFi and Gemini, lending your crypto to a borrower. These borrowers pay interest to BlockFi (and you — the lender).
- The investor gains when their crypto price increases, plus 2-6% on their holdings.
- Example: You give $10k in Bitcoin to BlockFi. If Bitcoin goes up 20% in a year and your crypto yield is 2%, your return in a year would be $2,000 price gain + $200 interest gain (excl. fees).
But nothing is risk-free — and anything to do with crypto becomes a lot riskier. When it comes to high-interest crypto accounts:
- Interest is paid in crypto — which could lead to your earnings fluctuating.
- Investors must give their private keys to the service — which could expose them to hacks or theft.
- There’s often a withdrawal limit and an early withdrawal fee.
Borrowers can also default on these loans, affecting BlockFi’s chance of recovering the crypto. If a mass default or capital loss happens, crypto lenders to BlockFi could lose it all.
Regulations Incoming: Regulators are looking to enforce rules on these companies which operate similarly to banks.
Banks and brokerage accounts insure up to $250k in deposits, while crypto accounts do not have this protection.
- If these platforms go out of business, you could lose everything.
- Some offer cybersecurity hack protection but the coverage amount varies.
Due to regulations, these platforms aren’t allowed to operate in New York. With the industry in its infancy, more rules designed to protect investors are likely to follow. Also, there is a mixed reception on interest-bearing accounts among crypto veterans.
Also, there is a mixed reception on interest-bearing accounts among crypto veterans.
- Dan Held, a well-known Bitcoin veteran, deposits a small portion of Bitcoin in these accounts but cautions — “never risk your whole stack, and don’t risk what you can’t lose.”
- Brandon Quittem of Swan Bitcoin (via BBG) doesn’t see the worth of putting Bitcoin — which returned ~200% per year over a decade — in an account bearing single-digit returns.
High-interest accounts let investors earn interest on Bitcoin and other cryptos in addition to potential gains — but don’t underestimate the risks.
Now that we better understand the risks, here are some guidelines and common questions to earn interest on crypto, such as Bitcoin.
Earn Interest On Bitcoin When You Invest With A Well-Known Platform Offering High-Yield Accounts
While investing in crypto is inherently risky, investors can lower that risk by using a more well-known platform with a longer operating history.
Two of the largest and well-known crypto platforms offering high-yield crypto accounts are BlockFi and Gemini.
- BlockFi has raised over $500m from well-known investors including Tiger Global, DST Global, Bain Capital Ventures and more.
- Gemini is founded by famous investors Cameron Winklevoss and Tyler Winklevoss.
These companies are heavyweights in the crypto trading industry and have been operating since 2014 (Gemini) and 2017 (BlockFi).
Never Invest All Your Crypto In These Platforms:
Unlike investing your money in a bank or brokerage account, investors can lose their money if these businesses were to go under. Hacks are also prevalent in the crypto industry, but some of these platforms have insurance against hacks.
- Gemini has an insurance program that provides coverage of $200m in crypto held by the company in the event of a hack.
But even with an insurance program, investors are not guaranteed to recoup all their crypto if default/hack happened.
How Much Interest Can You Earn On Crypto?
On BlockFi, these are the interest rates of commonly held Cryptos:
- Bitcoin — up to 4% APY (annual percentage yield)
- Ethereum — up to 4%
- USDT — up to 7.5%
On Gemini, these are the interest rates of commonly held Cryptos:
- Bitcoin — 2.05% APY (annual percentage yield)
- Ether — 2.05% APY
- Bitcoin Cash — 4.29% APY
- Dogecoin 7.40% APY
Learn More About How To Earn Interest On Bitcoin: How much should investors allocate to crypto in a $100k portfolio?