CryptoAM: Deposit Accounts, Cold Storage, and College Kids
3 things you need to know:
One: BlockFi Introduces a “Crypto Deposit” account with 6.2% interest
Interest rates on deposits in most parts of the world kind of suck. In the US for example a quick search of the best savings rates at traditional banks shows a top interest rate of 2.45%. This is actually up about 50x from 10 years ago, and this is mostly due to the rising Fed interest rates and the emergence of online banking.
That's why eyebrows were raised on Tuesday when BlockFi announced that it would be introducing a crypto deposit account with an interest rate of 6%, or 6.2% with compound interest. The account is called the BlockFi Interest Account (BIA).
How it works:
Users need to deposit a minimum of 1 BTC or 25 ETH to start an account. You can withdraw your money at any time.
BlockFi lends the crypto to what they call 'trusted institutional and corporate borrowers', most of which I would assume are hedge funds looking for shorting opportunities or working capital. According to BlockFi's website, the reason why BlockFi can offer rates this high is because these institutions pay greater than 6% interest.
How BlockFi makes sure your crypto safe:
The loans are over collateralized, meaning that for every 1 BTC an institution borrowed they have to put up more than the equivalent amount (e.g. 1.05 BTC). It's unclear whether this collateral is in fiat or in other tokens. The difference is important; collateralized tokens will be riskier than fiat (unless that fiat is the Venezuelan bolivar).
BlockFi liquidates the positions of any borrowers that fall below the collateralized limit to ensure depositors can get their money back at any time. The account holdings are custodied at Gemini Trust Holdings.
It's important to note that unlike your normal fiat savings account, savings in a BlockFi account are not backed by the federal government. That's a fun fact if you didn't know already - your fiat holdings are backed in most cases by some form of federal deposit insurance to make sure if things go really south you won't lose all your money. In the U.S, this is usually the FDIC which insures deposits up to $250,000.
Financial products that allow people to make money off their idle tokens are hot in crypto right now. From staking services to deposit accounts, there has been a profusion of new services to enable this. My hunch is that most people (in crypto) don't immediately care about the lack of deposit insurance, so the higher rate is pretty attractive. The real test will be in unforeseen circumstances; how will BlockFi’s system cope if there's a major fall in crypto prices coupled with high customer withdrawal rates?
Some thoughts: I’ve been saying it since the first CryptoAM, and will continue to do so. We are seeing the creation of traditional financial products, in a rebirth of the current system. The only different is that it’s all based around crypto assets. We are seeing a parallel financial system emerge, complete with banks, money market funds, lenders. Prime brokerages and “investment banks” have been popping up as well, painting a rosy picture for the future of crypto…
Two: BitGo investigates an order book — infrastructure is everything
As first reported by The Block, BitGo announced that they’re working on cold storage enabled trading, allowing firms to trade with major exchanges directly from BitGo cold storage reserves.
This announcement flew under the radar, but is actually quite a large announcement and means a lot for the traders and institutions of the world. One of the difficulties of trading is third party risk. If you have the majority of your funds in cold storage, and you want to exit a position, it often takes up to 48 hours to do so.
This lag obviously causes problems for active trading, leading many crypto funds to execute large positions in a short amount of time, increasingly the volatility of the markets. With the introduction of trading from your cold storage accounts, large buyers and sellers will be more willing to scale into the markets reducing volatility. Institutions will also be more willing to enter into cryptocurrency positions with reduced third party risk. The *party* is just beginning!
One fun thing: The Second Largest Mining Operation: College Kids
College kids are finding genius ways to make the most of their tuition money. According to Cisco researchers, college campuses are responsible for 22% of all mining of virtual currencies.
Aren't mining profits low right now? Not if your electricity costs are 0, and that's what the majority of these students appear to be doing by taking advantage of free electricity in their college dorms.
Yea, this is hilarious. I was already living off campus by the time I discovered cryptocurrency (early 2017), but you already know that.
Second thought: move into an apartment where the utilities are included in rent, and set up a miner. This is actually pretty common for older buildings without apartment meters in NYC and DC, so there might be some legs to this…
Go deeper: Read the article & look at some graphs
Also in the news:
Market Outlook:
Quick Take
Direction: LTC & BNB continued to lead the market this week, and is trading up over 20% week over week. Bitcoin is showing significant strength as well, with strong performance and limited pullback. I’ll be looking to how it reacts around the 3900 level. A strong rejection would lead to high likelihood of 3700 being revisited, while a break and hold of 3900 would lead me to believe a long position to 4200 would be EV positive.
Key Support: 3850
Key Resistance: 3910
Overall Market: BNB should theoretically be overbought, but I wouldn’t count it out. Strong fundamentals. It’s outperformance should inspire other alts to follow, and I’d be expecting BTC dominance to decrease by a few percentage points over the next month.
What I’m reading today:
This is just going to be a shoutout to my favorite twitter account. His threads are some of the best analysis of the markets I’ve seen. The tl;dr of the thread is that Ethereum’s recent performance has in a large part been a result of massive leverage. Historically when leverage reaches these levels there has been a large pullback, so be on the lookout for a sharp reversal of recent trends.
Join the conversation on Telegram and Twitter
If you ❤️ our newsletter, tell your friends about us!
Nothing written in CryptoAM is legal, or investment advice and should not be taken as such. CryptoAM does not make any guarantee or other promise as to any results that may be obtained from using our content. No one should make any investment decision without first consulting his or her own financial advisor and conducting his or her own research and due diligence.