The year 2020 has been a tough year for the stocks market, because of the ongoing pandemic. It has however been a very rewarding one for cryptocurrencies. As an illustration, Ethereum based digital assets have garnered an average of 456 percent year-to-date gain.
This makes the smart contracts blockchain 178 strong asset class, the most robust performers of the year. Bitcoin is also dominating the crypto scene, breaking the $20k and rallying to $58k per coin level this year. Consequently, cryptocurrency trading via trusted margin and derivatives platforms like PrimeXBT, has become popular amongst traders.
Digital currency price increases go along with the asset class’s volatility, which can bring in huge profits for savvy traders. These price swings can also cause losses in an instant. The price upswings and buoyancy have attracted many analysts, professional traders, and large investment businesses to the Bitcoin trading scene.
That said, blockchain-based assets might have tons of momentum, but trading them is not every investor’s cup of tea. The cautious trader might, for instance, find the lack of crypto technical analysis data very unsettling. Cryptocurrencies have been around for a few years and therefore do not have the lengthy price action track record of the equity and forex markets.
How Do Digital Currency Savings Accounts Work?
Fortunately, there are other ways to make a profit from crypto-assets besides actively trading in them. Any digital currency holder that wants to diversify their portfolio can save their assets in a digital currency savings account and earn interest.
The cryptocurrency savings account is similar to a bank’s savings account. It allows the investor to earn interest on their assets from the digital currency market. This leaves the asset’s holder less exposed to the sector’s minimal regulation and volatility.
With banks, the account holder opens an account and deposits their cash. The bank then lends out this money to third parties for a charge. From its profits, the bank will remit some payment as interest to the account holder.
In the crypto circles, the digital currency holder will open an account and invest their crypto assets in it. The account’s provider will, just like the bank, loan these blockchain assets to traders for profit. The account holder will at the end of a period earn their interest.
The Pros and Cons of Crypto Assets Savings Accounts
That said, there are significant differences between a bank’s savings account and a crypto savings account. First, legacy finance institution savings accounts have Federal Deposit Insurance Corporation (FDIC) insurance. The saver’s funds are safe.
The digital currency market is not as regulated as the traditional banking system is. Consequently, the crypto asset savings accounts do not have FDIC insurance. That being the case, there is a probability that assets could lose their initial value while held in the savings account should the industry’s price volatility affect them. The crypto asset savings account therefore is like an investment account.
One other major difference between the banking industry’s savings account and the cryptocurrency account is fund access ease. The saver can easily walk into a bank and withdraw their savings on demand. In the crypto scene, the investor has to abide by the minimum deposit period before the withdrawal.
An early exit could result in extra charges that will eat into the profit or capital. To save into a crypto assets account, the investor has to give up their private keys to the account provider for lending purposes. This increases the risk of having crypto assets in a savings account. Investors should save their assets with reputable account providers. They should also expect to earn simple interest, not compound interest.
Fortunately, while fiat’s savings accounts have a yearly interest rate as low as 0.1 to 0.6 percent, the crypto assets industry will pay its investors higher yield rates. As an illustration, some crypto assets savings accounts have an annual percentage yield of 8.6 percent.
The savings account is a fantastic alternative to the cryptocurrency holder that has a static wallet. Other ways to earn a profit using cryptocurrencies include staking.
Investors can lock their assets in a project and earn more crypto as interest. It is also possible to generate profit from crypto assets through direct lending platforms and mining.
This content is brought to you by Christa McDermott.