- Cash savings rates irritate me.
- At 0.06 percent, big banks?
Thank you, but no thanks.
Even the greatest online savings accounts have interest rates of less than 1%.
Where can I obtain a good savings rate these days?
If you own cryptocurrencies such as bitcoin, you may want to consider opening a cryptocurrency savings account, where some accounts offer as much as 8.6%!
That’s right, you read it accurately.
If you think that’s a little far-fetched, you’re not alone.
In my never-ending hunt for out-of-the-box investments, I just studied and created a cryptocurrency savings account on Blockfi.com, where I’ll earn 8.6% in bitcoin interest delivered to my account monthly. Here’s what I discovered regarding the advantages and disadvantages.
Because I already had some, I picked USDC as my preferred currency.
At this point, I don’t know enough about the distinctions between these two stable currencies to advocate one over the other.
Isn’t Cryptocurrency Extremely Risky?
Yes, bitcoin, ethereum, and other cryptocurrencies are very volatile, making long-term holding difficult. Bitcoin, for example, has traded as low as $3,000 and as high as $12,500 this year!. Please, please, please do not purchase bitcoin with the intention of earning interest on it. The majority of cryptocurrencies are quite volatile.
There are, however, a number of “stable” currencies that trade 1:1 with the US dollar. We wish to keep these monies and generate interest in them. Even if these currencies are fixed to the US dollar (1 stable coin = $1 USD), you still run the risk of losing your money. In the same manner that money market funds have periodically “broken the buck,” market forces may make a stable coin worth less than a dollar.
All of this is to imply that just because this account is labeled as a “savings account” doesn’t mean it’s the same as an FDIC-insured, US-dollar savings account with a regulated bank.
You must eventually determine if the risk is worth the possible rewards of 8% on a highly liquid asset.
Here’s how I’m approaching this new category of accounts.
How to Invest in a Crypto Savings Account and Earn 8% or More
1. Decide how much money you’re willing to risk.
As I said in my Barbell Investing piece, I’m a tremendous risk-averse.
I’m wary of promises that seem too good to be true, therefore I do several tiny experiments in which I may learn by doing. This is no exception.
I opened the accounts to see what I needed to know before deciding whether or not to contribute additional money.
I originally invested in bitcoin (BTC) in 2014, thus I was an early adopter who had amassed a significant crypto asset portfolio over the previous six years. Because I had $2,000 in USDC (Stablecoin) waiting in my coinbase account, I decided to make a $2,000 first investment.
I’ve also uploaded all of my USDT (another stablecoin) holdings after making the original payment and having a few more weeks to study. This comes to slightly around $30,000 in total.
If you don’t already have cryptocurrencies, you’ll pick a dollar amount that you’re comfortable with (for individuals in the United States). There are no minimum deposit or balance restrictions for most services; however, some services have minimum withdrawal requirements (BlockFi is 0.003 BTC and 0.056 ETH, which is around $35 at current values). To begin, I would set aside at least $100.
2. Create a cryptocurrency savings account.
After doing some research, I decided on BlockFi. It seems to have the most coins and, in general, better deposit rates than the other rivals I looked at. It’s simple to open an account, and they employ the same bank-level encryption that all other financial institutions use.
3. Fund Your Crypto Savings Account with Dollars
The next step is to deposit your cryptocurrency (if applicable) or US cash into your account. Here are some alternatives for you:
4. Decide which currency you’d want to keep.
You may trade into any of the other accessible currencies once you have stablecoin or cryptocurrency in your account. I don’t encourage trading cryptocurrencies for the sake of this article. Remember, I’m looking for a return that is as consistent as possible and closely resembles a traditional savings account, but with a greater rate of return.
Because I already had some, I picked USDC as my preferred currency. At this point, I don’t know enough about the distinctions between these two stable currencies to advocate one over the other. If all you’re doing is adding US cash to your Blockfi account, Gemini is the way to go.
5. Get to work!
You don’t need to do anything further after you’ve placed money into your account. Interest is calculated daily and transferred monthly into your account. This is what it will look like:
6. Recognize the Differences Between Crypto and Cash Savings
We really need to know what the total danger is here before we can move this beyond an experiment. Cryptocurrency is not protected in the same way that conventional money is.
To begin with, your savings account is FDIC guaranteed, which means you won’t lose any money if your bank goes bankrupt. Second, the US dollar is an international reserve currency guaranteed by the US government’s full confidence and credit, but none of these stable coins are backed by the US government – at least not yet.
Third, a dollar is not the same as a stable currency linked to the US dollar. Tether’s peg may be found here.
Fourth, major institutions may spend billions on security. Some security precautions may be lacking in a bitcoin startup. At the moment, I’m not sure how to examine this.
7. Make the decision to go bigger
Given the hazards listed above, I don’t believe it makes sense to hold a large sum of money in these accounts just yet.
Furthermore, I would not recommend placing money from your emergency fund or any money that you believe you can’t live without in this account. It’s improbable that you’ll lose money, but it’s not zero, and it’s much more than the danger of losing money in your cash savings account. Is it, however, worth the risk?
It is — on a chunk of my liquid assets, at least. It makes sense for me to grow larger and add more to my account since I’m not putting my emergency money in danger, and I was already assuming many of the risks listed above by having USDT in another account without being compensated for it like I am now.
Is it Worth It to Open a Crypto Savings Account?
For the time being, this experiment makes sense for long-term cryptocurrency investors or those wishing to increase their rate of return on liquid assets. However, due to the added dangers indicated above, investing a large portion of your funds in one of these accounts is not recommended.
What evidence would I need to alter my mind? I’d put a lot of money into this account if my money was guaranteed against loss and theft in the same manner that it is in the US banking system. I’d borrow millions of dollars to add to this account and earn a very good low-risk spread if I could ensure it against depreciation, theft, and bankruptcy — say, at 2% per year. This is how a carry trade is defined.