Most traditional savings accounts earn less than a 1% annual interest rate, and after accounting for inflation, this money is actually losing value. Investors are looking for better ways to earn interest on appreciating assets, and Bitcoin and other cryptocurrencies have developed more efficient lending markets that utilize blockchain technology to process loans.
Learn how you can start earning interest on Bitcoin now.
Step 1: Open a crypto account.
The most common way to earn interest on Bitcoin is through a savings account with a cryptocurrency lending platform. These platforms lend bitcoin to institutional and retail investors and make investors collateralize their loans with cryptocurrency in case they default.
Some popular crypto accounts that let you earn interest on Bitcoin are BlockFi, Celsius and Nexo.io. Nexo.io offers the highest interest rate at 8% APY.
Alternatively, you can use Bitcoin on Ethereum’s blockchain – Wrapped Bitcoin (WBTC). You can earn interest on Wrapped Bitcoin using many services on Ethereum’s blockchain, and you don’t even need to make an account to get started. Once you connect your Ethereum wallet to a decentralized platform like Compound or Aave, you can start earning interest on your Wrapped Bitcoin.
For beginners, cryptocurrency lending platforms are the easiest way to earn interest on your crypto. All you need to do is sign up for an account, and once you’ve funded your account, you can start earning interest. Most of these accounts don’t have minimum lockup times, so you can pull out your Bitcoin at any time.
Step 2: Look at interest rates.
Depending on the platform you use, the interest rate you’ll receive in your Bitcoin savings account will vary. Most platforms let you earn between 3% to 8% annual interest rate on Bitcoin, but some platforms like BlockFi have tiered interest rates depending on how much Bitcoin you deposit.
For example, you’ll earn 6% interest on up to 2.5 bitcoin, but you’ll only earn 3% interest on a deposit over 2.5 bitcoin. There’s no minimum amount to start earning interest on your bitcoin, and you can deposit as much as you want into your BlockFi account.
Most of these interest rates are floating rates, meaning they change with market supply and demand. Most interest rates don’t fluctuate all that much, but there can be fluctuations in rates from time to time. It’s a good idea to monitor the interest you’re earning to make sure you’re earning the highest interest rate possible.
Step 3: Add Bitcoin to your portfolio.
Some cryptocurrency lending platforms like BlockFi let you directly buy cryptocurrency via wire transfer from your bank. To do this, you’ll need to add your bank account number and routing number to your account. Once you’ve added your banking information, you can buy bitcoin and start earning interest.
Other platforms, like Nexo.io only let you deposit cryptocurrencies on its platform. If you don’t already own bitcoin, you’ll need to make an account with a cryptocurrency exchange.
Some easy to use exchanges that you can buy bitcoin with a bank account are eToro and Coinbase. These exchanges have mobile apps that make it easy to manage your crypto on-the-go.
If you choose to earn interest on Wrapped Bitcoin, you can buy WBTC on Coinbase and send it to your Ethereum wallet of choice. Good software wallets to use for Ethereum are Coinbase Wallet and Metamask, as they’re easy to use with decentralized applications.
Once your WBTC is deposited into your Ethereum Wallet, all you need to do is connect your wallet to a program like Compound or Aave to start earning interest on your Wrapped Bitcoin.
Step 4: Earn interest.
Once you’ve deposited your funds into an interest bearing account, you should begin earning interest right away. Depending on the amount of bitcoin you deposit and the platform you use, the interest rate you receive from your savings account will vary.
Since interest rates vary between 3% to around 10%, it’s a good idea to keep your funds in the savings account for the long term if you want to earn any significant amount of interest in bitcoin.
How Does Compound Interest Work for Bitcoin?
There are 2 main types of interest you can earn from a savings account: simple interest and compound interest. Simple interest only earns interest from your principal investment, while compound interest earns interest on your principal investment plus previously earned interest. Because of this, compound interest grows your account at a faster rate than simple interest.
Compound interest is added to your account at certain intervals specified by the savings account you invest with. The shorter the time interval is, the more you will earn from compound interest. This is because you’ll start earning extra interest on your previously earned interest as soon as it’s deposited into your savings account.
BlockFi offers compound interest that’s deposited into your account on a monthly basis. Other platforms offer even shorter intervals for compound interest; Celsius offers weekly compound interest and Nexo.io offers daily compound interest.
While shorter time intervals will grow your portfolio faster, there is not a huge difference in earning potential between compound interest that’s deposited weekly and daily. Intervals for compound interest are much more important when the interval is quarterly or monthly, as the interest you earn in this time will be much more than the daily or weekly interest you earn.
Pros and Cons of Earning Interest in Bitcoin
A major benefit of earning interest in Bitcoin is the high interest rates you can receive. While most traditional savings accounts offer less than 1% annual interest, most bitcoin savings accounts offer interest rates at least 5 times that of traditional savings accounts. And interest is paid in Bitcoin, so if the value of bitcoin appreciates so will the interest you’ve earned.
The biggest risk of using Bitcoin as a means of earning interest is the volatility of the cryptocurrency’s price. While you can earn 6% interest on your bitcoin, if the price of bitcoin falls just 6% then the USD value of your account will be worth the same after a year of investing. If you believe Bitcoin’s price will rise in the long term, then an interest bearing bitcoin account may be a good investment for you.
Trading Bitcoin vs Earning Interest
As a Bitcoin investor, you’ll need whether you’re going to trade or HODL your bitcoin. Trading your bitcoin is another way to accumulate more cryptocurrency, but you risk losing your investment to the market.
With the prices of cryptocurrencies continuing to be volatile, trading crypto is a high risk strategy. Instead many investors who believe in Bitcoin simply hold their crypto to speculate on its value. If you plan to hold your Bitcoin over the long term, earning interest is a great low risk way to increase your bitcoin position.
Frequently Asked Questions
Q. Can I get free Bitcoin with a crypto interest account?
You can earn free bitcoin with BlockFi by referring friends with your referral code. For each person who signs up with your referral code and deposits at least $100 into their interest bearing savings account, you’ll receive $10 of free bitcoin.
Q.What’s the difference between Bitcoin and Wrapped Bitcoin?
Bitcoin and Wrapped Bitcoin hold the same value because they’re tied to the same asset. While Bitcoin is the original cryptocurrency on the Bitcoin blockchain, Wrapped Bitcoin (WBTC) is a token on Ethereum’s blockchain that is pegged to the price of Bitcoin. Wrapped Bitcoin can be used with smart contracts on Ethereum’s blockchain, allowing you to earn interest on WBTC without a centralized 3rd party to manage your funds.
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