If you have been tracking the crypto space for a while now, you would have heard a term called crypto banking. It is a mechanism under which you can lend your crypto holdings to platforms and earn attractive interest on cryptocurrencies like Bitcoin, Ethereum, and the like. This method works well for people who have invested in cryptocurrencies with a long-term view, also known as HODLers in crypto terminology.
The interest rate offered by these platforms can range from 4-12% depending on the term, level of security, and many other factors that may vary from platform to platform. It is important to understand how you can earn solid interest with your Bitcoin holdings along with the gains that the crypto space is witnessing currently.
How to earn interest on Bitcoin?
In basic terms, you are expected to deposit your Bitcoin holdings in a crypto savings account. The platform has the access to extend your Bitcoin holdings to individuals, corporates, or institutions. Each of these entities can use the borrowed Bitcoin holdings for its objectives.
These platforms return the assets to the lenders along with interest. These platforms take a small cut from the total interest and pay the rest to you as they return your Bitcoin holdings. The platform can also extend your Bitcoin holdings to decentralized protocols in exchange for an interest.
Read also: All about Ethereum: What, How and Comparison with Bitcoin
Is it risky?
As crypto savings account or crypto lending is a relatively new phenomenon, there are risks involved that you should understand before deciding to board this ship.
There have been instances of hacking and security lapses across platforms. Therefore, it is important to do proper due diligence about the safety protocols put in place by a platform to increase the level of security.
In addition to security threats, there is a chance that the borrower may default. Therefore, it is important to understand the regulations of a platform in case of a default.
As there is not much regulation that exists in the crypto space in the present scenario, it is important to understand that the investments being made in various crypto assets including Bitcoin are exposed to
In line with the nature of the crypto investments, opting for a crypto savings account to earn interest on your Bitcoin holdings is a risky option.
What to keep in mind?
There are certain things you should keep in mind before opting to earn interest on your Bitcoin holdings that are as follows:
- Platform stability: Always do a thorough check on the current state of the platform, the team that is running the show, the kind of funding it has raised, etc.
- Security ecosystem: Do a complete analysis of the security ecosystem that is in place for any platform. Always opt for a platform that has a robust security ecosystem in place.
- Rate of return: There would be a varied rate of return that will be offered by these platforms on your Bitcoin holdings. As a result, it is advisable to check the rate of returns and make an appropriate decision after taking into account the platform stability and security ecosystem in place.
Read also: Bitcoin: Here is all you want to know
Which platforms offer interest on Bitcoin?
There are several platforms like CoinDCX, ZebPay, and BitBns along with a few others that allow the investors to lend their Bitcoin holdings and a few other crypto assets and earn interest on the same. The annual rate of interest is different for each platform and crypto-assets.
It is important to note that since the Bitcoin holdings are locked in for the period for which interest is expected to be paid, the investors that have lent their holding cannot sell even as the price of the crypto assets goes down in the open market. Some exchanges like ZebPay allow users to exit these arrangements in exchange for a penalty fee.
All these platforms have different rules for returns, lock-in, and interest payment. Therefore, it is important to check the rules that are in place for individual platforms before making a final decision.
In a normal scenario, crypto holders are expected to transfer their Bitcoin holdings to exchange wallets for the duration of the deposit. At the end of the deposit period, the holding is transferred back to the trading wallet along with the due interest.
