There are several ways to earn profit from cryptocurrency investment. A crypto interest account can sound appealing if you have accumulated some cryptocurrencies that you intend to keep for a long time, especially in a low-yield environment. Some teasing rates reach as high as 8.6%.
Despite having the appearance of savings accounts, these interest-earning accounts are much riskier. Interest in cryptocurrencies is not the same as interest in cash savings. You must be aware that you could lose a significant part of your investment in a matter of days. So, do your research before investing.
So, before opening a crypto yield account, you should be aware of the following factors:
How Does Crypto Yield Account Work?
In exchange for borrowing your tokens, cryptocurrency exchanges and service providers offer you a yield when you open a cryptocurrency interest-earning account. That way, keeping your cryptocurrency in a savings account that pays interest is similar to keeping your money in a traditional bank savings account.
However, cryptocurrency interest-earning accounts boast yearly percentage yields that are much higher than the interest rates available on traditional savings accounts. According to data from the FDIC, the average annual percentage yield (APY) on savings accounts is about 0.06 percent, but DepositAccounts points out that some of the best high-yield savings accounts currently provide 0.70 percent. Contrast that with the interest rates offered on cryptocurrency interest-earning accounts from exchanges like Aqru, Gemini, BlockFi, and Nexo, which claim to give rates as high as 8.6 percent, depending on the type of coin you own.
It Involves A Major Investment Risk
Putting aside cryptocurrencies’ high volatility, safety is a fundamental difference between traditional savings accounts and their cryptocurrency counterparts. But, of course, there are always risks to consider, including the general business risk of the corporation paying the interest and lockup periods with specific services. Being unable to access your cryptocurrency when you need it is the absolute last thing you want.
The Federal Deposit Insurance Corporation, a federal organization, insures your money on behalf of banking institutions. Similar protections are provided to credit unions by the National Credit Union Administration. You don’t run the same danger of financial loss as you would with an investment if you bank with a participating financial institution.
However, as cryptocurrency is decentralized, it is not governed by a single bank or any other authority. Therefore, the only form of protection you have when you deposit money into a company-serviced crypto interest-earning account is their terms of service.
Additionally, it can be challenging to determine which companies you can trust because the federal government does not govern cryptocurrency. The secret is to conduct research on the exchange and learn how your deposits are secured.
Like Aqru, a cryptocurrency exchange enables users to transfer their currencies into interest-bearing accounts. Depending on the cryptocurrency deposits, you can earn up to 7% interest on your holding. Every day, interest is accrued and compounded. Users of Aqru can withdraw funds at any moment, and the company guarantees there will be no fees for transferring or redeeming your Fiat currencies.
Investing In Stable Coins Earns Higher Interest Rates
Stable coins offer a mechanism to prevent sharp fluctuations in a cryptocurrency price. The recent performance of Bitcoin is a fair illustration of the degree of volatility for which cryptocurrencies have become renowned: Prior to dropping more than 50% to about $20,000 in June, its price reached a high of about $65,000 in April.
However, stable coins still use blockchain technology for transactions, but they can be linked to other assets like the US dollar or gold to minimize volatility. For example, exchanges like Coinbase and Circle allow users to exchange the stable coin USDC for dollars at a 1:1 ratio.
Although these currencies strive to provide a more stable investing experience, their stability still depends on the coin’s issuer. That implies that their value is only as steady as the organization supporting them.
It actually doesn’t matter if you are making an interest or not. Assets held in a cryptocurrency interest-earning account should be regarded as investments rather than savings. A major part of your funds should be invested in low-cost, diversified investments like index funds in order to increase your long-term prosperity.
So, limit your cryptocurrency holdings to a small portion of your overall portfolio. You should never invest any money in cryptocurrencies that you are not ready to lose because it is a high-risk and high-reward investment.