Interest

‘Everything bubble’ bursts: Worst year for US stocks and bonds since 1932

While the crypto markets have taken a bashing in 2022, it hasn’t exactly been rosy for US stocks, bonds and real estate either.

It’s been a torrid year for investors, and not just those in crypto, with United States (U.S.) bonds experiencing their worst year in centuries and U.S. stocks pulling back nearly 20% since 2022 began.

As of Nov. 30, a Financial Times report noted that a traditional portfolio consisting of 60% stocks and 40% bonds will have seen its worst performance since 1932, when the U.S. was in the midst of the Great Depression.

*Nominal return for US stocks and bonds from 1871-2022. Source: Financial Times.*

Meanwhile, tech stocks, which some theorize have a correlat i on with cryptocurrency prices, haven’t had a great year either.

An index tracking the performance of U.S. companies in the industry recorded a loss of 35.76% for the year.

Household tech giants such as Netflix, Meta, Zoom, Spotify and Tesla have all had particularly difficult years as well with their share prices falling in the range of 51% and 70%, according to Yahoo Finance.

Even the “safe as houses” real estate sector has started to show signs of pain, with the most recent data from the Federal Housing Finance Agency showing that U.S. house prices were stagnant through September and October.

*Return for an index tracking the stock performance of U.S. companies in the technology industry throughout 2022. Source: S&P Dow Jones Indices.*

These stock and sector declines may help put the current crypto winter into better perspective, noting that total crypto market cap fell from $2.25 trillion to $798 billion throughout the year, representing a drop of 64.5%, and crypto billionaires recorded huge losses.

Some of the crypto crises that have occurred throughout 2022 include the bankruptcies of FTX, Celsius and Three Arrows Capital, as well as the collapse of the Terra network, among others.

According to a Dec. 30 tweet by investment analyst Andreas Steno, “every single asset class” is down significantly in 2022, and real estate is soon to follow.

Every single liquid asset class is down A LOT this year and yet I keep hearing that Real Estate will whether the storm OK

No it will not.. It just lags.

— AndreasStenoLarsen (@AndreasSteno) December 29, 2022

How to earn interest from crypto saving accounts?

Crypto investors can earn interest via crypto lending by finding a cryptocurrency exchange or DApp that offers a crypto interest account.

The cryptocurrency industry has offered developers and investors the opportunity to introduce new financial tools providing plentiful options to earn passive income. Simply holding crypto has offered patient investors the chance to make gains over the years. However, there are various other ways to increase crypto assets’ stacks, even in bear markets.

Other than staking, crypto savings accounts allow retail investors to accrue their funds by earning interest on the crypto assets they deposit on specific cryptocurrency platforms if they agree to lend out their coins or tokens. Crypto interest accounts are particularly appealing because they distribute much higher returns than traditional bank savings accounts, considering that the average interest rate applied by a crypto savings account can be up to 7.5%, against the average 0.06% of bank savings accounts.

The difference in rates between crypto and traditional savings accounts is somewhat significant but comes with higher risks associated with the service. We’ll find out here how to access crypto savings accounts, the crypto interest rates and deposit terms and the risks associated with this type of financial instrument.

What is a crypto savings account?

A crypto interest account is generally a DeFi platform’s service that lets you earn interest on digital assets you’ve deposited and agreed to lend out in exchange for a return. This service is similar to a bank savings account that will lend out your money to other customers or financial institutions for a certain amount of time and will give you interest for that service.

By definition, blockchain technology encourages users to become self-sovereign and independent from third parties. However, intermediate companies have become a necessary component of the industry providing crypto savings accounts to those who want to enjoy the benefits of the technology without making too much effort to learn complicated and burdensome processes.

Other than convenience, these companies will also hold some of the risks involved and ensure depositors are paid first if adverse events like insolvency occur. Some companies are backed by insurance and work with well-established custodians to protect their customers.

How does a crypto savings account work?

Once you deposit your crypto assets into a savings account, you start accruing interest from day one. Most of the popular cryptocurrencies can be used in a crypto savings account, with the most picked being Bitcoin (BTC), Ether (ETH) and Litecoin (LTC), while many favor interest rates on stablecoins like Tether (USDT), USD Coin (USDC) and PAX Dollar (USDP).

By depositing your crypto assets into a savings account, you formally grant the platform the right to use your money for any purpose, from lending it out to investing it or staking it on your behalf. Primarily, it will be used for lending it out to earn high returns, some of which will be paid to you as regular interest payments.

Crypto savings accounts may offer you more favorable rates if you agree to lock up your crypto for a while or hold a platform-specific token. Nexo, for instance, increases interest rates by up to 4% for holders of the platform’s governance token.

How to invest in a crypto savings plan?

When you want to invest in a crypto savings plan, the first step is to pick the right account for you and get started as follows:

Choose a cryptocurrency platform you trust that offers realistic interest rates;
Transfer cryptocurrency to this chosen platform;
Follow the few simple steps to deposit your crypto assets into a savings account. Usually, these steps are straightforward, and you’ll be guided through the process by the platform;
Choose if you want to deposit your asset for a limited amount of time or select a flexible time that will allow you to withdraw your crypto at any time;
Start earning interest from the first day.

As mentioned, there are plenty of platforms to choose from, including well-established cryptocurrency exchanges like Coinbase, with the following indications of interest rates on fixed savings:

Binance is the other global popular crypto platform that offers interest rates on many cryptocurrencies with flexible savings and locked savings options:

An increasing number of other financial service companies and cryptocurrency platforms provide these types of accounts. Nexo and Crypto.com are among companies offering greater interest rates to cryptocurrency holders who lock their assets away for weeks or months. However, the drawback with this type of savings account is that you can’t withdraw or sell your crypto during that period.

How much interest you can earn with a crypto savings account largely depends on the platform and the cryptocurrency you choose to deposit. The interest rate offered by the service will also be driven by market conditions and is usually paid out in the cryptocurrency you have deposited.

While their high-interest rates can entice you, you should consider how secure your investment is with them. Choosing the best crypto interest account is not simply a matter of comparing interest rates paid but also making sure your investment is as safe as possible.

Remember, they are custodians of your crypto assets, meaning that by holding your funds, they can even stop you from withdrawing them or delaying the withdrawal process, which may result in a loss for you if the value of the crypto asset changes in the meantime. When choosing the best interest rates, make sure you understand the difference between the annual percentage rate (APR) and the annual percentage yield (APY) because they might mislead you in calculating your yearly returns.

In short, APY includes a compound interest, i.e., the addition of interest to the principal sum of a loan or deposit (the interest on interest accrued). On the other hand, APR does not include compound interest. Due to the compound interest factor, APY will provide a higher return than APR. Yet, it’s always worth reading the savings account’s small print because certain services will pay simple interest only and won’t produce compound interest over time.

Crypto saving account risks

The crypto industry is mostly unregulated, so the investors might not have any cover in case something goes wrong with their assets. In this framework, operate crypto savings accounts that do not offer government-backed deposit insurance like the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA).

These savings accounts offer higher yields because they are riskier. For example, they could limit how quickly you can withdraw your assets and, in times of difficulties, they might not let customers withdraw their assets at all.

In exchange for these restrictions and the associated risk, these savings accounts are much more interesting for an investor than a typical bank account. However, for these accounts to yield such a high interest which may exceed 20% in some cases, you should wonder how your money is employed in the background.

Like regular banks operate under a “fractional reserve” banking service, so do most crypto companies. They are lending out more than they have to financial institutions with the difference that there is no deposit insurance to back them, as in the case of traditional banks.

Crypto savings accounts vs. crypto wallets

Crypto wallets simply won’t accrue your cryptocurrency holdings as opposed to crypto savings accounts that are conceived to increase the number of coins you own over time.

This might be at the expense of key ownership, though, because the private keys that allow you to access your coins are maintained by the crypto platform. On the other hand, most crypto wallets will ensure you keep full ownership of your private keys.

Security is another concern that should be very well addressed. There are security risks in the centralized platform that holds your private keys because it is potentially at risk of becoming insolvent, bankrupt or being hacked, and you could lose your money.

In the same way, you should choose a wallet carefully to avoid picking a service with little security and a vulnerability to hacking. Also, you must ensure you can easily access your wallet’s private keys if you lose your operational device and need to restore your assets in another digital location.

Cryptocurrency is a work in progress and will likely undergo continuous changes over the years, especially in terms of regulation, which will also affect how crypto savings accounts are managed. In June 2022, the issues of leading crypto lending platforms like Block.Fi and Celsius have raised further concerns over the future of crypto savings accounts and similar related cryptocurrency services.

Caution and due diligence are always recommended if you consider opening a crypto savings account and weigh the associated risks against the chances of high returns, especially if you risk life savings or anything close to that.

How to earn interest from crypto saving accounts

Crypto investors can earn interest via crypto lending by finding a cryptocurrency exchange or DApp that offers a crypto interest account.

What is a crypto savings account?

How does a crypto savings account work?

How to invest in a crypto savings plan?

When you want to invest in a crypto savings plan, the first step is to pick the right account for you and get started as follows:

Choose a cryptocurrency platform you trust that offers realistic interest rates;
Transfer cryptocurrency to this chosen platform;
Follow the few simple steps to deposit your crypto assets into a savings account. Usually, these steps are straightforward, and you’ll be guided through the process by the platform;
Choose if you want to deposit your asset for a limited amount of time or select a flexible time that will allow you to withdraw your crypto at any time;
Start earning interest from the first day.

As mentioned, there are plenty of platforms to choose from, including well-established cryptocurrency exchanges like Coinbase, with the following indications of interest rates on fixed savings:

Binance is the other global popular crypto platform that offers interest rates on many cryptocurrencies with flexible savings and locked savings options:

In short, APY includes a compound interest — i.e., the addition of interest to the principal sum of a loan or deposit (the interest on interest accrued). On the other hand, APR does not include compound interest. Due to the compound interest factor, APY will provide a higher return than APR. Yet, it’s always worth reading the savings account’s small print because certain services will pay simple interest only and won’t produce compound interest over time.

Crypto saving account risks

Crypto savings accounts vs. crypto wallets

Crypto wallets simply won’t accrue your cryptocurrency holdings as opposed to crypto savings accounts that are conceived to increase the number of coins you own over time.

Investors shifting toward lower-risk crypto yields — Block Earner GM

The Australian fintech company has seen a surge in investors wanting a “less risky version” of double-digit crypto returns.

Block Earner, an Australian fintech company, says the fall of Terra in May has led to “positive surprises” for his company, with investors beginning to find their way toward the lower-risk crypto yield products they offer.

Speaking to Cointelegraph, the company’s general manager Apurva Chiranewala revealed that the company has seen a surge of investors previously seeking double-digit returns but now wants a “less risky version” of those returns:

“Given that the risks have gone up significantly for those returns, those guys have actually started coming in engaging with us because we look like the less riskier version of those double-digit return products.”

Before their collapse, crypto lending platforms such as Celsius and Anchor Protocol offered annual percentage yields (APYs) of up to 20% for users who locked their digital assets up with them.

Block Earner is a blockchain-powered fintech company that allows access to crypto-related yield-generating products. Still, Chiranewala explained the platform is aimed at those that want exposure to the crypto markets but have a lower risk appetite.

Its Gold Earner and United States dollar Earner products currently generate single-digit yields.

Data shared by Block Earner to Cointelegraph shows that the Terra fiasco coincided with an increase in withdrawal events at the beginning of May and again in mid-June due to the fall of Celsius. However, there’s been a steady return to normal levels since.

Australian dollar (AUD) cash deposits have also remained steady over the April to July period, while the company’s user base has increased an average of 15% month on month.

Chiranewala also stated that over the last few weeks, he had seen a “high degree of interest” from institutional investors, including hedge funds, venture capital (VC) and superannuation funds (retirement funds):

“We are almost forced to now simultaneously build institutional products because the interest in that space is massive.”

“There are VCs with treasuries, there are hedge funds, there are private funds […], and then there are super funds that have a mandate for a very small portion of the portfolio to be deployed into high-yielding assets,” he added.

Chiranewala admits that the company has not been entirely immune to the slump in the crypto markets. Block Earner has had to pull back its user-acquisition marketing spend:

“In the environment that we are in right now, it makes very little sense for us to market and acquires users. So we stopped, we actually pulled back a lot on our marketing strategy.”

“You naturally see a little bit of a softer trajectory of growth, as opposed to a steeper, you know, curve that grows week on week,” he said.

Earlier this month, a CoinGecko report stated that the decentralized finance (DeFi) market cap fell 74.6% from $142 million to $36 million over the second quarter, due mainly to the collapse of Terra and its stablecoin TerraUSD Classic (USTC) in May.