Can interest-bearing accounts attract new users to crypto?

It has been almost six months since the start of 2020, and so far, this has been an extremely challenging year. The year that was expected to kickstart a new decade and bring Bitcoin halving — usually considered a positive event — also brought coronavirus that caused a global economic meltdown.

Interestingly enough, this did push the public more towards cryptocurrency. At the very least, the failure of financial institutions caused the interest in decentralized money to rise.

CoinMarketCap already confirmed this with early May findings, which show that the Q1 2020 saw a 43.24% increase in the number of female crypto users. Meanwhile, the number of average users between the ages of 14 and 24 surged by 46.04%.

While the price of Bitcoin did crash soon after the stock market due to correlation, it has since recovered almost completely, up 94% since March 16th. Even so, this is not why people seem to be entering the crypto industry. Instead, the thing that seems to attract them is depositor accounts.

Depositor accounts allow their owners to earn interest on crypto or fiat currencies. This has earned them another name — interest-bearing cryptocurrency accounts, and some speculate that these are the future of crypto.

Risk-bearing accounts to provide a gateway to cryptocurrency

Interest-bearing accounts for crypto have been around since 2014, but they only started gaining attention last year, in 2019.  Since then, their popularity skyrocketed, which was confirmed by multiple crypto earning firms, such as BlockFi.

A big part of the growth came in the post-corona era, according to the company’s CEO, Zac Prince. He said that the firm launched a new app in late April and it saw 30% week-over-week growth in funded accounts.

With COVID-19 driving people towards crypto, and interest-bearing accounts being as popular as they are — they might help new investors find away into the industry.

How does it all work?

The accounts are simple enough to understand — it is based on borrowing assets to institutions to earn yield from interest, which is then paid to the depositors. It is a great way to secure some passive income, whether from crypto or fiat. The rates differ from one firm to another, but they tend to be quite high, which allows lenders to earn a nice profit in return.

Of course, there is always some risk when borrowing money, especially if there is no collateral. You don’t know whom you are borrowing to, or what they plan to do with it. There is also a matter of safety and security to keep in mind, so it is not exactly risk-free, but it is not worse than investing or trading, only a different kind of risk applies.