Bitcoin’s recent performance, skyrocketing to $50,000 early in October, is a tell-a-tell sign of market volatility. It reached an all-time high of almost $65,000 in April before plummeting more than 30% to roughly $30,000 on May 19.
If you seek more sustainable methods of earning interest on appreciating assets, then there is a way to make money by merely HODLing the Bitcoin. It is because Bitcoin and other cryptocurrencies have built more efficient lending markets that process loans using blockchain technology. Earning interest in bitcoin provides passive income and compounds your earnings if the cryptocurrencies continue to grow.
While there are several ways to generate income on your digital assets, to begin with, you may use a centralized platform that allows you to earn interest on your bitcoin holdings via an interest-bearing cryptocurrency account such as on BlockFi. Check out their lending calculator to gauge the interest on Bitcoin.
And then, you have centralized interest-bearing crypto accounts that offer a simple method for novices to generate passive income from their bitcoin, with yearly earnings ranging from 4% to 12%, depending on the cryptocurrency you pick.
BlockFi, Celsius, and Crypto.com are three of the finest centralized alternatives for earning interest on your cryptocurrency available right now. Before you decide on lending your hard-earned bitcoin, let us decode how the interest works in the crypto world.
How Does a Cryptocurrency Interest-Earning Account Work?
A cryptocurrency interest-bearing is no different than your traditional savings bank account. The first step requires you to buy Bitcoins from UK websites or head to your local P2P Bitcoin exchange and invest in BTC. And then, deposit that BTC without any lockup period or deposit restrictions in any one of the crypto lending sites.
Once done, you will start receiving compound interest on bitcoin — allowing you to accept payments and withdraw money at any moment.
How does the Interest Calculation work?
Interest is calculated based on market conditions and is paid in the same cryptocurrency as the investment. Additionally, there is a withdrawal charge that changes regularly to reflect the state of the blockchain.
It’s worth mentioning that interest rates in cryptocurrency marketplaces are incomparable to those in conventional markets. Consider the situation as a risk-reward trade-off. Crypto interest-earning account providers can offer you yearly interest rates on your cryptocurrencies of up to 10.5%. All deposits receive the best interest rate immediately, and the interest is compounded each month.
Compare Interests Before Lending the BTC
You can visit the platform’s website and find out the interest rates on bitcoin (and many other coins). The interest rate you receive may differ, even if you invest with the same cryptocurrency, depending on whether the business takes a cut of the income. Therefore, make sure you also factor in the transaction charges before lending your BTC on any platform.
Typically, these cryptocurrency savings accounts’ interest rates are variable because crypto loans constantly fluctuate in response to supply and demand. Many investors and cryptocurrency exchanges that provide leverage often request cryptocurrency loans.
You can expect a fair interest rate of anything between 6% and 9% for a stablecoin. Though, a few cryptocurrency interest rates may rise significantly higher –– up to and including 100%. These high interest rates, however, should be treated as significant crypto inflation and highly leveraged holdings. For anyone new to accruing interest in cryptocurrencies, you should be wary of any rate of more than 25%.
Therefore, research well and read this piece to get familiar with the known names in the crypto lending market.
Staking is involved in holding your BTC to support the blockchain network and confirm transactions. In return, you earn a percentage-rate reward as blockchain puts those coins to work. This is also a way to become a significant part of the network security infrastructure, which, in turn, adds profit!
Now, there are two types of staking;
- Proof of Work (PoW): An old method proposed by Satoshi Nakamoto (the supposed inventor of Bitcoin) in Bitcoin’s first whitepaper. Implementing this approach would be extremely costly in terms of energy, mining infrastructure, and impact on the environment. It would have limited scalability due to its sluggish transaction processing capacity, requiring the creation of a viable substitute – Proof of Stake.
- Proof of Stake (PoS): It functions similarly to the Proof of Work but in a rather environment-friendly manner. The staker demonstrates their support for a cryptocurrency by generating a block of that currency on the blockchain. Each time a new block is uploaded to the blockchain, new bitcoin coins are created and given to the block’s validator as staking rewards. The payouts are often in the same cryptocurrency as the one staked. Ethereum offered up to 5% APR on each ETH 2.0 that users stake as a reward for assisting with network security via Proof of Stake.
It is a relatively new concept of stacking that is already gaining traction on many diverse lending platforms. The term “yield farming” refers to a process in which cryptocurrency lenders earn rewards for depositing units of crypto coins into a lending protocol which is a smart contract-based liquidity pool. It is an investor’s pursuit to earn passive income on crypto-assets where rewards accrue in the form of interest from trading fees.
For this, Compound Labs has created one of the largest Defi lending platforms, allowing you to borrow and lend any bitcoin on an ad-hoc basis at algorithmically set rates.
A typical yield farmer continuously shuffles crypto assets between pools on the compound, offering the maximum Annual Percentage Yield (APY). Crypto yield farming provides double returns if you put stablecoins in a digital account. An APY on your initial deposits is the first income. And later, certain protocols provide a new token on top of the yield that you can charge the borrower as an extra subsidy.
Getting paid interest on your bitcoin investment is an excellent method to increase the value of your investment. Numerous platforms allow you to withdraw your balance at any moment, making it very simple to liquidate your bitcoin holdings if necessary.
Certain businesses require that you store your cryptocurrency in a savings account for a certain period. This increases your exposure to the cryptocurrency market’s risk of price volatility. While you would receive interest, the value of the investment would decrease if the cryptocurrency’s value decreased.
Earning interest in Bitcoin has several advantages, including high-interest rates. While most conventional savings accounts pay less than 2.5% yearly interest, most bitcoin savings accounts pay at least five times that rate. And because payments are made in bitcoin, your interest will increase in value over time.