The continued prominence of crypto-currencies has ensured that they’re going to continue to play a significant role in the financial markets. This means that for most people, crypto-currencies are going to form part of their portfolio of assets.
Crypto-currencies have numerous benefits – they’re simple to trade and most of them are not bound to the success or failure of any country, providing people with an independent way to hold cash. However, until recently, the only way to realise growth in a crypto-currency was to actively trade it, buying low and selling high.
However, as AltCoinTrader CEO Richard de Sousa points out, there are many people who have crypto-currency holdings, but who have no interest in actively trading them. “In the crypto-currency industry, the so-called HODLers would have seen the value of their crypto-currencies rise relative to other currencies such as the dollar and the rand, but there was no way for them to actually increase the value of their holdings in real terms.”
In traditional banking environments, when you leave money in a bank account you earn interest, and through crypto-currency exchanges such as AltCoinTrader, this is increasingly becoming a feature of crypto-currencies as well.
“Earning interest on crypto-currencies works in a very similar manner to how it does in a traditional bank, except it’s more transparent when you’re working with crypto-currencies,” comments De Sousa. “Because of the high demand for crypto-currencies from traders, it’s possible to lend out crypto-currency holdings and charge interest on that loan. This isn’t something that the average customer would be able to do on their own, without incurring unacceptable levels of risk. However, exchanges like us are able to establish partnerships with reputable organisations and facilitate the process, allowing our clients to earn interest in the process.”
Understand the risks
He comments that this isn’t entirely risk free as there is still the potential for those companies borrowing the crypto-currency to default on the loan, but as long as your chosen exchange has properly vetted their partners then the risks should be significantly reduced.
“This is both similar and different from saving money with a traditional bank. On the one hand, a bank will vet potential customers to ensure they can pay back any loan and in selecting partners, companies like us do the same thing. We have no interest in seeing our customers lose money,” he says. “However, the key difference is that if someone defaults on a loan to a bank, there is no impact on the individual depositors; however, in the crypto-currency world, it’s not the exchange lending the currency to the partner, it’s the owner of the crypto-currency themselves. This means that should the company borrowing the currency default, there is a direct impact on the customer. This increases the risk, but also reinforces the importance of working with a reputable exchange.”
Another key difference is that depending on the demand for a specific crypto-currency, the potential interest that can be earned changes as well. “We’re seeing that some crypto-currencies earn around 4% interest, while others can be as high as 10%,” comments De Sousa. “Even in the world of crypto-currencies, where we’ve seen the exchange rate skyrocket, the same basic rules of investing still apply.”
This means that while the interest on some crypto-currencies may be higher than others, investors should still be wary of organisations offering unrealistically high interest rates.
For those investors who want to keep part of their holdings in crypto-currencies, but don’t want to actively trade their holdings, there are now ways to increase the value of their investment without having to worry about if the exchange rate is going up or down.
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