How interest paying crypto accounts could be a gamechanger

As inflation heats up, investors are looking for real yield in the markets.

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Have you checked the returns on your cash holdings lately?

If so, you’re likely not jumping for joy.

It’s no secret that interest rates have plunged to all-time lows over the past few years. A trend exacerbated by the onset of the global pandemic which saw the Reserve Bank of Australia (RBA) slash the official cash rate to an unprecedented 0.15%.

That’s right about in the range of what you can expect from a term deposit, by the way. With shorter-term cash holdings yielding an even more meagre 0.05%.

Those yields were minimal even when inflation was virtually absent. But with consumer prices now rising quickly across the globe, the real (inflation adjusted) returns from cash deposits are well into the negative.

Which brings us to…

Interest paying crypto accounts “a paradigm shift”

Darren Abrams is the chief investment officer of digital currency provider Aus Merchant Investments.

Asked about interest paying crypto accounts, Abrams told the Motley fool, “Yield bearing accounts are a paradigm shift from traditional banking. I believe that this will be the ‘killer app’ that bridges DeFi [decentralised finance] and mainstream bank users.”

Investors should take care to note that these types of yield bearing crypto accounts don’t come with the Aussie government’s deposit guarantee, as is the case with authorised deposit-taking institutions.

However, with inflation heating up and looking far less transitory than central bankers had hoped only a few months ago, Abrams says:

Applications such as Anchor Protocol (CRYPTO: ANC) offer a 19.5% yield on a USD pegged stablecoin. Compared to the average savings account that pays 0.05% interest, the impetus to utilise this functionality is immense and increasing exponentially as inflation erodes the purchasing power of fiat savings.

Digital assets still trade like risk assets

Having touted the potential game changing nature of interest paying crypto accounts, Abrams cautions that, “Currently, the whole digital asset market trades very much like traditional risk assets.”

But he sees that changing for select cryptos over time:

Digital assets have evolved. As such they have a broad array of benefits and negative attributes. Bitcoin (CRYPTO: BTC) – and some other deflationary coins – are essentially the digital versions of hard money and therefore will eventually act as haven assets. Smart contract platforms that facilitate the financialization of the crypto economy are more akin to traditional risk assets.

What about meme crypto assets like Shiba Inu (CRYPTO: SHIB)?

You won’t find Abrams lining up to snap up the next ‘hot’ meme crypto, like Shiba Inu. “As an investor, I see no inherent value in meme coins,” he told us.

“However, I understand the power of a sense of belonging, which was clear during the GameStop Corp (NYSE: GME) saga,” he added. “Therefore, I believe these meme coins are here to stay. However, I would never advise investing in any of them. If you’re unsure, do some further research or seek professional advice before investing.”

The Motley Fool Australia's parent company The Motley Fool Holdings Inc. owns and recommends Bitcoin. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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