How to earn interest on foreign currency using cryptos

Ovex allows you to earn 10% a year on Tether, a US dollar-backed stablecoin, in addition to making risk-free profits from arbitrage.
Ovex has simplified a complicated process and made it available to retail investors. Image: Shutterstock

Ovex has introduced thousands of South Africans to crypto arbitrage, where you can purchase cryptos overseas and sell them for a higher price in SA.

Now clients can earn interest on cryptos like bitcoin at 4% a year, and as high as 10% for US dollar-backed stablecoins like Tether.

“As Decentralised Finance or DeFi kicks into high gear, the opportunities for making profits with cryptos are expanding and we are in the forefront of that revolution,” says Jon Ovadia, founder and CEO of crypto company Ovex.

“For our clients this means when you are not making profits from arbitrage, or you want to park your crypto in a safe haven asset like a US dollar-backed stablecoin, you can earn interest on it straight away.”

Being able to earn 10% a year on a US dollar-backed stablecoin should attract attention from a variety of investors looking at ways to protect their wealth and beat inflation. By way of comparison, SA banks offer interest rates up to 7.8%, but only on fixed accounts where your money is tied up for months.

‘Staking’

With Ovex you can put your crypto to work and earn interest for just a few hours, or leave it there for years.

This is known as “staking” in the crypto space, which is pretty much the same as earning interest on a bank account. The advantage with Ovex is that you can “stake” your crypto for a few hours or days, and then “unstake” it at any time with no restrictions or penalties.

This can be incorporated into an investment strategy, combining arbitrage and staking.

Arbitrage gaps between markets can disappear, and often do as more people see the opportunity and exploit it.

At times like this, a good strategy is to “stake” your crypto so you earn interest on it.

You can “unstake” your crypto later when another arbitrage opportunity appears.

Virtually all cryptos can be purchased on overseas exchanges for a slightly lower price than they are available locally. The price differences or “arbitrage gaps” can widen, narrow and disappear quickly, so it takes technical savvy to spot the opportunities and profit from them.

Arbitrage, a relatively risk-free way to make profits

Arbitrage is a relatively risk-free way of making profits in cryptos, though it is not entirely risk-free. If you are buying bitcoin on an overseas exchange like Kraken and then sending it to SA to sell at a higher price on a local exchange, there is always a chance that the bitcoin price can drop during the 1-2 hours it takes to arrive in SA.

Ovex simplified the process and made it available to retail investors. It did this by settling on a stablecoin called Trust USD (TUSD) which is a crypto backed 1:1 by the US dollar.

Ovex partnered with Trust Token, a San Francisco-based stablecoin platform with a market cap of over $350 million that allows users to buy cryptocurrency offshore at the international price, without ever having to leave Ovex. When using the Ovex automated arbitrage service all the logistics of shipping foreign currency abroad is handled by Ovex and its partners.

A stablecoin is a type of crypto asset fully backed by fiat currency, such as the US dollar. Just as with bitcoin, Ovex clients can purchase TUSD in the US and then sell them at a higher price on the Ovex exchange. The arbitrage gap varies between 2% and 5%, recently yielding a net profit of 2.2% after costs are deducted for the Ovex arbitrage service clients. This means you could make 4-5% a week if you complete two arbitrage cycles during that period.

When not arbitraging, you can elect to put your cryptos to work and earn additional interest.

Holding a stablecoin backed by the US dollar (like Tether or USDT) is a way to hedge against SA inflation risks, says Ovadia.

“Inflation is relatively low at the moment, but those risks may resurface at some point in the future, and holding a crypto version of the US dollar would be a safe option for those concerned about inflationary risks.”

Ovex was founded as an arbitrage service, but also offers an Over-The-Counter desk for relatively large crypto purchases that are not easily filled on traditional exchanges.

Arbitrage using foreign currency allowances

In order to take advantage of this arbitrage opportunity, clients must make use of their R1 million discretionary allowance (available to everyone) and their R10 million a year foreign investment allowance (for which tax clearance is required).

Application for the foreign investment allowance usually requires the expertise of an accountant to apply to the SA Reserve Bank and can cost up to R2 000 a time. Most people using their allowance do not ship R10 million in one go – they break it up into smaller amounts of say R250 000 a time. This means each time you arbitrage you have to get you accountant to apply to the Reserve Bank at a cost of about R2 000, which can eat into your arbitrage profits.

Ovex has now automated the application process so that you pay R2 000 just once, and thereafter the application is submitted for free.

DeFi opens up new interest earning opportunities in crypto-based forex

Unlike centralised exchanges where control is concentrated in the hands of shareholder, DeFi exchanges have popped up in recent years where you can buy and sell cryptos without an intermediary, and often at better prices than on centralised exchanges.

You can also borrow, lend and earn interest – all without a go-between.

Why stablecoins are becoming popular

Stablecoins like have become hugely important to the crypto market. There are more than 34 billion Tether in issue, and the stablecoin now accounts for 50-60% of all bitcoin trades.

The reason many investors purchase bitcoin with stablecoins like Tether is that some exchanges will only transact in “virtual currencies”, sometimes for convenience, and sometimes to avoid regulatory oversight. Holding stablecoins is a way to park crypto profits in a “safe harbour” asset linked to US dollars without having to exit the crypto eco-sphere.

You can find out more and sign up here.

Brought to you by Ovex.

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