It’s only in the last year or so that crypto investors have discovered the ability to earn interest on their cryptos.
The idea of earning 4% a year on your bitcoin seemed trivial when historically you could expect a 200% growth in asset value.
But then investors figured out that a 4% return a year could easily become 10% or 20% depending on how much you paid for your crypto. For example, if you paid $10 000 for a bitcoin three years ago, today it would be worth $38 000. The 4% you are earning today is equivalent to nearly 16% on your original purchase price, and that’s a lot better than you will get from a traditional ‘safe’ investment in a bank.
That’s not to say that earning interest on cryptos is without risk.
First, you have the wild volatility of cryptos, a point which has been hammered home in the last month. The 4% you were earning at the beginning of May has become a whole lot smaller in June as crypto values collapsed.
Then you have the problem of centralised exchanges, which many crypto purists see as a flaw in the financial matrix that cryptos were supposed to cure. You are still reliant on the financial soundness of a centralised exchange (meaning an exchange that has a central point of control, unlike decentralised exchanges, such as Uniswap and Oasis, which provide a platform for peer-to-peer transactions without any intermediary).
The ability to earn 10% or even 20% interest a year on cryptos seems incomprehensible to many, and some would argue that it is unsustainable – but others see this as a simple function of cutting out the middleman. Suddenly, the true benefit of crypto investments and blockchain became apparent.
Ovex CEO Jon Ovadia says investors are waking up to the possibilities of investing in cryptos.
“It’s become apparent to crypto investors that they can earn passive income on their investments in a variety of ways. This is the result of two main factors.
“First, there is supply and demand; people are willing to pay generous interest to borrow money in cryptos because the demand is high.
“Second, we are able to shave off a huge chunk of costs by cutting out the middleman, and for many traditional investors this is an eye-opener. They see how much is added in costs when you have intermediaries and agents involved in the transaction.
“Cryptos are suddenly delivering on their promise of fast, frictionless investing, and those who own bitcoin or Ethereum now have a reason not to sell – they can earn interest on their investments instead.”
Find out more about Ovex’s Arbitrage service here.
Earn up to 20% on a crypto interest account
Ovex is offering annual returns of up to 20% on its crypto interest account for those investing more than R500 000, and somewhat less than this for smaller amounts.
This interest is generated in two ways:
- ‘Staking’ (or putting the crypto to work on the blockchain where it can earn rewards) or straightforward lending of cryptos; and
- Arbitraging the difference between bitcoin spot and futures prices, which can range from 0% to 6%. It’s possible to lock in this profit by buying bitcoin on the spot market and selling it on the futures market (and holding the futures contract to maturity).
Decentralised finance (DeFi) is a new trend that is changing the world of finance, and it rests on new technologies such as cryptography and blockchain.
Unlike centralised exchanges, where control is concentrated in the hands of shareholders and management, DeFi exchanges – where you can buy and sell cryptos without an intermediary, and often at better prices than on centralised exchanges – have popped up in recent years. You can also borrow, lend and earn interest, all without a go-between.
Crypto investors have discovered crypto as collateral
As Forbes points out, the rush of funds into crypto lending was triggered by a dawning realisation that crypto holdings are an excellent source of collateral: “Crypto holders may want to access dollars while still holding on to their crypto, and thus they can collateralise dollar loans with their crypto stash. More sophisticated investors may want to realise the tax benefits of leveraging their crypto to access dollars, instead of selling and triggering a taxable event subject to capital gains tax. Similarly, miners with ongoing operational expenses can take out loans to fund operations while maintaining their crypto exposure.”
High interest rates are driving flows into crypto interest accounts
Adds Ovadia: “The idea that you can earn up to 20% a year in passive income is what is driving huge volume flows to crypto interest accounts. We don’t see this slowing down any time soon.
“These kinds of returns are what you might expect from the stock market in a good year, with all the attendant risks that implies. It’s not that there are no risks in crypto interest accounts, but you are not having to bet on market direction, and that takes away one of the biggest risks.”
There’s another point to bear in mind: the annual rates of interest achievable on cryptos are agnostic as to the starting currency. So whether you purchase bitcoin in rand or US dollars, you earn the same percentage return once you ‘stake’ it.
While it is possible to earn up to 11% on a fixed deposit in SA, this requires locking up the funds for an extended period of time. Crypto interest accounts can be locked up for a day or 20 years – the only variable is the quantum of funds involved. For Ovex clients, the larger the sum invested, the higher the annual percentage interest you can earn.
To find out more about Ovex’s crypto interest accounts, click here.
Brought to you by Ovex.
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