Earn passive income on your crypto holdings and stablecoins

If you’re into digital assets, there are several ways to earn money aside from participating in price appreciation. In this article, we will look into understanding crypto savings accounts and the idea of staking, and whether they are both worth considering.

Crypto savings accounts are a rather new concept but interest – pun intended – in these forms of passive income instruments has risen.

While traditional banking interest rates have declined and remain pervasively close to zero or negative in many territories around the world, crypto savings accounts are marketing that they are able to pay between 4% to 10% returns (and up to 20% in some cases) on your idle cryptocurrency holdings.

With staking, you are locking in your digital assets in your crypto wallet in a fixed or flexible schedule, earning rewards in the process.

Why should I bother with crypto savings accounts?

Interest rates have never been lower

Crypto savings is a very interesting space because it opens up more avenues for people to either monetize their existing crypto holdings, diversify away from fiat currencies or earn higher rates of return by taking additional risks.

Interest rates around the world have remained low in the past decade, following the massive stimulus package during the 2008 financial crisis. In the chart below, you can see that the U.S. Fed funds rate has never returned to its high of 20% in 1980 and has remained close to zero following years of quantitative easing.

In Singapore, risk-free assets like Singapore Savings bonds have trended lower in recent months as well, taking the most recent SBJUN20 SSB issuance 10-year average annual yield to just 1.05%.

In some economies like those in Europe and Japan, interest rates have reached negative territories, but their economies have not seen the revival expected of flushing the economy with cash. This might perhaps hint that we are close to reaching the limits of traditional monetary policy.

You believe in the long-term value of crypto assets

Although we have seen the cryptocurrency hype die down significantly over the past few months, I personally believe that we will see a future where digital assets through the blockchain become a bigger part of people’s lives, just like how the Internet changed the world.

How this will pan out over the next several decades is anyone’s guess.

In my opinion, I foresee a future where we will transact with digital currencies (we are already halfway there with e-wallets). There will be interoperability between various digital currencies so you can exchange one currency for another easily (like a rewards system). There will be further disintermediation in the economy (more peer-to-peer) and we will see a community-driven ecosystem where people create their own digital economy.

Plus, everything will be trustless and borderless; a truly wonderful thing. This might pan out over several decades and accelerated by an increasingly tech-driven world and regulatory clarity.

You want to put your crypto assets to work

If you are looking for a place to put your idle crypto assets to work, then crypto savings accounts might be the place for you to earn interest on your crypto holdings.

Now, with that in mind, let’s get started with the process.

How to buy Crypto in Singapore?

The first step is to exchange your fiat currency (SGD, USD, EUR or any other currency) for a popular digital currency like Bitcoin (BTC) or Ethereum (ETH) or a stable coin like USDT or USDC. This is often the hardest step because of anti-money laundering regulations and involves identity checks and a proper onboarding process.

There are several ways to do this in Singapore.

Buy via Coinhako

Coinhako is a digital wallet based in Singapore where you can buy popular digital currencies. You can deposit money directly to their bank account to get started or use an intermediary like Xfers, another digital wallet regulated by MAS on their platform.

Deposits via bank account are checked periodically twice a day on business days while Xfers deposits are usually reflected much quicker, within half-an-hour.

Once your Coinhako wallet is loaded, you can proceed to buy cryptocurrencies within the wallet itself.

Buy via Binance

Binance is also another popular way to purchase Cryptocurrencies. Binance is backed by Temasek Holdings’ Vertex Holdings and is one of the world’s biggest cryptocurrency exchanges with an average volume of 2 billion dollars transacted.

On Binance, you can purchase crypto via credit cards (not recommended because of high fees) or do a peer-to-peer transaction with Binance acting as a facilitator.

Binance P2P screen

Buy via Crypto.com app

The Crypto.com app allows you to buy cryptocurrencies with credit/debit cards or through your Xfers wallet like Coinhako. There are no fees for buying crypto with credit/debit cards through June 2020 although your bank might charge a Dynamic Conversion Charge or foreign currency processing charge of 1%.

As of today, this is one of the easiest ways to buy cryptocurrencies as their onboarding is pretty quick and you can enjoy a wide range of perks (including the very nice MCO Visa Card which gives you up to 5% rebates on your spending).

Buy via Coinbase

Coinbase is another popular channel to buy crypto assets. You can buy via credit card (but pay additional fees on top). While this is one the easiest ways to buy crypto because of their sleek and gorgeous interface, it is one of the more expensive ways because you can only use credit cards to buy crypto on Coinbase.

With the above options, my recommended way is to buy via the Crypto.com app (through the Xfers integration – bank deposits within minutes) if you are looking for the best experience. You can also use Binance if you want the lowest bid-ask spreads on your purchases, but the buying experience might be a bit more complicated.

Passive Income with Crypto Savings Accounts

Alright, you’ve either bought your cryptocurrencies, or you have them already sitting somewhere, now what?

Instead of leaving them in the wallet, you could transfer it out in a hardware wallet for secure storage (provided you don’t lose your keys) or earn interest on them with a crypto savings account.

There are several options available in the market but I’ll start with a few:

BlockFi – earn up to 8.6% APY on your crypto

BlockFi was founded in August 2017 in the US as a non-bank lender offering crypto-backed USD loans to crypto-asset owners.

They offer a BlockFi Interest Account (BIA) with monthly compound interest on crypto assets up to 8.6% for stable coins (pegged to the USD) or on crypto assets like BTC, ETH and LTC.

They custodise their assets with Gemini,  a licensed digital asset exchange and custodian regulated by the New York State Department of Financial Services.

On the interest front, they pay out compound interest monthly, accrued daily and can be either paid in the deposited cryptocurrency or in your desired cryptocurrency.

Celsius Network – earn interest on a wider range of deposits

Celsius Network was founded in 2017 with the goal of acting as a catalyst for financial disruption on a global scale by offering services that will bring the next 100 million people into cryptocurrency.

They have more than US$300m in assets and 40 thousand active wallets using their services.

For Celsius Network, their value comes from accepting a wider range of crypto assets to earn interest. This extends to even digital tokens like Stellar (XLM), Ripple (XRP) and DASH.

Depositors can earn interest on their own terms with no minimum deposits, conduct free withdrawals, have no lock ups and earn compound interest either in their native cryptocurrency or earn a higher interest rate in their own token (CEL).

Passive Income with Staking

You can also earn rewards through staking – a short summary of staking is that you literally just hold the crypto assets in your digital wallet, do nothing, and get paid in proportion of your holdings.

Crypto.com / Binance Staking

You can also stake your holdings purchased through Crypto.com or Binance via the in-app staking option so you don’t have to transfer your holdings out. This is slightly different from the interest account but works in a similar way.

Crypto.com has a Crypto Earn programme where you can earn simple interest on your cryptocurrencies on fixed or flexible (no lockups) terms.

Crypto.com Earn interest rates on ETH

Depositors who hold at least 500 units of their native currency (MCO) can enjoy higher interest rates as well.

Binance Staking allows depositors to stake their holdings in Binance for interest with rewards calculated daily and distributed monthly in their BInance account.

Notice that the interest rates can differ across platforms and tokens/cryptocurrencies.

Direct staking from your wallet

There are other forms of staking for Proof-of-Stake tokens but these are more advanced in nature. These include Tezos (XTZ), EOS and ATOM which allow holders to stake from their wallets directly and earn staking rewards to increase their rewards from the digital assets they own.

Popular Proof-of-Stake tokens

This allows your holdings to grow over time while you participate in the proof-of-stake mechanism of the blockchain to verify transactions and facilitate consensus in the distributed network. This is in contrast to traditional ways of mining coins digitally through expensive hardware and electricity.

One easy way is to stake from a decentralized cryptocurrency wallet like Trust Wallet, where you can just simply download the wallet, create a new multi-sig wallet and store your private keys safely, then stake the tokens directly from the wallet.

You can also use other decentralized wallets like Atomic Wallet or hardware wallets like the Ledger Nano S but they go beyond the scope of this introduction.

What are some risks with crypto interest accounts and staking?

Investing in cryptocurrencies itself is a high risk activity and you should always assume that the value of your investment can be completely written off at any time as most of it is speculative.

Earning interest on your crypto is comes with a higher risk – and there are a few reasons for being so.

  • Regulation risk – The crypto-sphere is as regulated as traditional finance so while it is more like the wild west, there are also opportunities for profits
  • Price risk – Cryptocurrencies have extreme price volatility and can see 60% to 80% drops in between periods. They can can depreciate in value (both against USD and BTC) while being locked up or held in staking
  • Inflation risk – When earning rewards (when staking), the supply of tokens in the ecosystem increases and reduces their purchasing power
  • Asset ownership risk – When using interest accounts, you are passing ownership of your digital assets to someone else for custody which can be hacked
  • Company risk – Your assets might never be recovered if the company disappears overnight
  • Default risk – The counter-party (if your assets are loaned out) might default on their loans
  • Technical risk – Bugs in the blockchain might destroy your tokens

This explains why the interest rates can be much higher than what traditional institutions are offering. By taking these additional risks, you have a much higher chance of losing your money completely.

Is it right for me?

I recommend doing further research and due diligence on this topic if earning returns on your digital asset holdings is something that interests you. There are a lot of finer nuances which I did not cover in this article.

But if you’re keen on signing up with any of them or if you found this article useful, I have several referral codes to share which you can use at no additional cost to you:

Disclaimer: Investing in cryptocurrencies is inherently high risk in nature and there is a risk of losing your entire capital, hence it might not be suitable for everyone. This article is not investment advice. DYODD.

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  1. You mentioned about the risks. But would this be much less for Stablecoins? Admittedly still trying to get my head around it.

    1. Stablecoins have less price risk as they don’t fluctuate as much, but they still can be plagued by other risks like counterparty risk, regulatory risk etc.

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