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Tuesday, November 24, 2020

Are Cryptocurrencies and Compound Interest a Good Mix?

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After an incredibly bullish year in 2018, the most valuable cryptocurrency in the world has tried to stage a comeback in 2020. In mid-November, Bitcoin shrugged off the climate of political uncertainty experienced in the United States following the general elections; the entire cryptocurrency market has been through a bit of an upswing this year, but BTC has managed to exceed expectations and surpass the $16,000 mark.

Cryptocurrency and Compound Interest Investors

Even though cryptocurrency trading does not seem like an activity that would attract compound interest investors, it is difficult to not pay attention to an investment commodity that was priced at $8,480 on November 15, 2019. Cryptocurrencies are risky and volatile investments, but if we compare them to high-yield corporate bonds, which are often referred to as “junk bonds,” it is clear to see that digital currency trading offers more enticing returns.

digital currency trading offers more enticing returns

For the most part, compound interest investors adhere to conservative financial strategies that would normally exclude the roller coaster cryptocurrency market; however, the exponential growth of Bitcoin over the last ten years is something that cannot be denied. In early 2012, BTC/USD was trading around $22; these days, the same currency pair trades above $16K, and the daily volumes rival some of the stocks listed on the benchmark S&P 500 index. For this reason, it is not surprising to learn about compound interest enthusiasts becoming interested in cryptocurrencies.

Historical Performance of Bitcoin

The truth about the meteoric rise of Bitcoin is that it has performed better than most compound interest portfolios. Let’s say a compounding enthusiast purchased a single BTC token in 2012 for just $22; let’s now imagine that this investor made small deposits into her cryptocurrency portfolio for the purpose of buying more tokens until she was able to acquire a total of three by 2015. Today, her initial $22 investment would have increased to more than $48,000. This is not so much compound interest as it is building wealth, but the principles of patience and discipline are still at play.

Compound interest investors who have been hoping for a cryptocurrency account that actually pays interest now have a tangible option in 2020: BlockFi, a digital currency exchange platform, is now offering this option. As of November, the annual percentage yield on a Tier 1 BlockFi account up to 2.5 BTC tokens was 6%. For stablecoin interest-bearing accounts holding USDC, the interest rate was 8.6%. With these attractive APY rates, BlockFi will certainly attract compound interest investors to the cryptocurrency trading world.

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