How to Earn an Interest in Cryptocurrency: A Beginner’s Guide

The upcoming generation of millionaires in the financial market will have much to do with fintech. In the chaotic year of 2020, companies in the U.S raised roughly $150 billion from venture capital firms. What is even more impressive is the rise of Decentralized Finance (DeFi), which provides innovative ways for investors to earn interest on cryptocurrency. 

In case this is your first time to know DeFi, it is a collective term for a wide range of blockchain-based forms of financial applications. Anyone with an Internet connection can take advantage of smart contracts on blockchains deployed by DeFi developers and trade crypto assets without relying on central financial intermediaries such as banks, brokerages, or exchanges. 

With advances in finance technology like DeFi, more and more people are investing in bitcoin, ETH, Ethereum, and other cryptocurrencies. It is a widely known fact that investors can make money once the digital coin appreciates. However, not all of us know that it is also possible to earn interest in cryptocurrency or make returns in other ways from holding it.

How can a cryptocurrency investor do that? How risky is that? What are the advantages and disadvantages when making money off cryptocurrencies? We will discuss investment strategies for digital money and related concerns in this article.

4 ways to earn interest in cryptocurrencies

What we all know is the crypto surge continuing recently together with dramatic price volatility. Bitcoin, the most famous digital coin, has blown past the $20,000 mark and surpassed record highs to reach the value of over 50000 USD. 

As you can see, cryptocurrency is a long-term investment for investors, which means that you can keep the coins in wallets with the hope that their values rocket in the following years. 

According to Alex Wearn, CEO  IDEX, there are a variety of ways to earn interest in cryptocurrency, including crypto applications, bitcoin-back credit cards, crypto lending and renting, and DeFi yield farming.

In general, the more knowledge required or the riskier the investment asset, the higher the potential yield.

Cryptocurrency applications

A cryptocurrency application allows mobile users to manage their cryptocurrency portfolios. Compared to desktop platforms, apps usually have easier setup and login features, which makes them a perfect method for first-time crypto investors and those with limited experience in the industry.

As investors start to pay more attention to crypto, there have been more and more fast and convenient mobile solutions. 

One great app is YIELD Fintech Investment App, which has just launched an Ethereum fund, helping users to earn up to 20% APY on cryptocurrency’s second-biggest asset, Ether. The application also offers various high-interest opportunities on major stablecoins such as USDC and USDT. Moreover, you can earn interest with YLD tokens via the YIELD App.

Cashback on a crypto credit card

Despite the cryptocurrency industry’s effort to provide complete brand-new financial protocols and instruments to investors, a credit card is something that it learns from the traditional banking system.

Some players in the sector are starting to offer crypto credit cards which help users benefit from cashback. 

The US has witnessed the first launches this year: the Gemini Credit Card and the BlockFi Bitcoin Rewards Credit Card. Gemini promises to give users three percent back in bitcoin or another crypto.  Meanwhile, BlockFi offers 1.5 percent cash back for each transaction which will be accrued and automatically converted to bitcoin and put into the customers’ account every month. 

The cashback rewards are almost the same as the “percentage back” promotions of traditional cards. The only difference is that you get the percentage back in bitcoin. With bitcoin a highly volatile and speculative asset, there remains a risk that you could default and lose all of the bitcoin. Therefore, you would need to spend on the credit card to get the rewards.

Decentralized lending

Decentralized lending allows you to lend digital money without a financial intermediary. 

Crypto lending services are automated through smart contracts, managed through a transaction protocol or computer program, which automatically executes the transaction on behalf of those who agree on the deal. 

Besides decentralized landscape, you can also lend and rent out cryptocurrency on plenty of online centralized platforms. For example, Nebeus, a Crypto lending platform, offers 80% loan-to-value with no interest and promises to secure the crypto for the customers. You can rent Nebeus your Crypto and get paid up to 6.75% annually.

Compared to cashback programs, Nebeus pays out in euros instead of bitcoin, which makes it a much safer option.

Check out: Top 10 Crypto Lending Platforms

Yield farming

Yield farming, also called liquidity mining, refers to the fact that an investor moves their cryptocurrencies to different DeFi platforms. In return, you will receive tokens, interest, or other types of rewards.

One great benefit of this method is that it offers high returns while the disadvantage is that it is not easy to use. Also, investors are not protected by regulators. 

The Pros & Cons when earning interest on cryptocurrency

Pro – High returns

It is undeniable that crypto may give investors extremely high returns. For example, from 2016 to 2021, the price of bitcoin has compounded at an annualized growth rate of 131.5% in USD. In the context of low government bond yields, crypto interest proves to be a lucrative investment. 

Pro – Portfolio diversification

Portfolio diversification means that you put your money in different assets and securities intending to minimize the overall risk of the portfolio. Crypto applications like YIELD, for example, allow users to invest in a wide range of digital money rather than focusing on bitcoin only. Therefore, you can expect more profits and manage risks better in the turbulent cryptocurrency market.

Cons – Market volatility  

Investors experience even more dramatic price fluctuations in the crypto market than they do in the stock market. 

From 2018 to mid-2019, the value of bitcoin fluctuated by around 2.67% each day. This fluctuation was six times higher than that of fiat currencies and gold, making many investors suffer from huge losses.

Cons – Crypto is not easy to comprehend

The most challenging obstacle for first-time investors is that it can be a difficult subject to understand. DeFi, blockchain, smart contracts are complicated concepts for any person, even those in the finance industry. Also, crypto apps are quite new to most people so it takes time to get to know and use the app to earn interest in digital coins.

Conclusion

With the development of fintech applications, the interest offered on cryptocurrencies is so attractive that it surpasses traditional assets like stocks, foreign currencies, or gold. Yet, the risk of investing in platforms that offer interest or returns on your cryptocurrency remains so it is extremely important to choose reliable mobile applications so that you are not exposed to scams and lose all of your money. You could earn a fabulous yield of 14 percent – but you could also lose everything if betting on the wrong app.