How interest paying crypto accounts could be a gamechanger

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

| More on:
A male investor sits at his desk looking at his laptop screen holding his hand to his chin pondering whether to buy Macquarie shares

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

More on Cryptocurrencies

A hip young guy works at his home workstation with two screens and a gamers chair, keeping an eye on his crypto investments.
Cryptocurrencies

This is why Ethereum has been outpacing the Bitcoin price gains. Will it last?

The Ethereum blockchain may make its long-awaited transition to a Proof of Stake protocol next month.

Read more »

a man sits in casual clothes in front of a computer amid graphic images of data superimposed on the image, as though he is engaged in IT or hacking activities.
Cryptocurrencies

Will the next era of computing break the Bitcoin price or boost it?

Cryptos have taken a beating over the past months as interest rates around the world ratcheted higher. But is there…

Read more »

a shiba inu dog looks happily at eh camera with his tongue out while his owner hods him on his chest as he sleeps on a hammock.
Cryptocurrencies

Here’s why the Dogecoin price has had such a great week

Economic data out of the United States and a surprise announcement by BlackRock offered some healthy tailwinds to cryptos over…

Read more »

A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price
Cryptocurrencies

Why this Bitcoin maximalist says all other ‘crypto is a scam’

Initially introduced in a 2008 whitepaper by one or more people going by the pseudonym of Satoshi Nakamoto, Bitcoin launched…

Read more »

A hand reaching into a computer to grab digital money, indicating a rise in the use of cryptocurrency
Cryptocurrencies

Why an RBA-issued crypto-like currency could soon be a reality

The RBA is piloting a central bank-baked digital currency.

Read more »

A male investor wearing a white shirt and blue suit jacket sits at his desk looking at his laptop with his hands to his chin, waiting in anticipation.
Cryptocurrencies

Can the Bitcoin price reach US$30,000 again in 2022?

Rising interest rates have resulted in significantly less institutional investor interest in cryptos.

Read more »

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Cryptocurrencies

Could this key metric signal more bad news for the Bitcoin price?

Crypto investors are keeping a close eye on the signals that could see the US Federal Reserve begin to ease…

Read more »

Man sitting at a desk facing his computer screen and holding a coin representing discussion by the RBA Governor about cryptocurrency and digital tokens
Cryptocurrencies

Is it smart to use dollar cost averaging to buy Bitcoin?

Should investors consider a DCA strategy for cryptocurrencies like Bitcoin?

Read more »