Cryptoloans reportedly give worse returns than three-month US government bonds

by Arthur · September 18, 2022

According to a recent report from Bloomberg, “Crypto rates typically sought by institutions have fallen below what the U.S. government pays to borrow for three months, giving the hedge funds and family offices that have flocked to the digital space less of a reason to continue invest.”

Here’s how Investopedia defines crypto loans:

“Crypto lending is the process of depositing cryptocurrency that is lent to borrowers against regular interest payments. Payments are made in the form of the cryptocurrency which is usually deposited and compounded on a daily, weekly or monthly basis.“

For example, on the Gemini crypto exchange, after opening an account, “you can buy any amount of cryptocurrency and immediately transfer it to Gemini Earn to start earning interest on your holdings.”

Currently (as of September 18th), if you deposit $10,000 worth of Bitcoin, you can earn 2.75% APY:

Treasury bills (or T-bills) are debt obligations – with maturities of one year or less – issued by the US Treasury Department.

As you can see from the chart below (by MarketWatch), on Friday (September 16), the yield on the US 3-month Treasury bill was 3.144%.

On September 13, Bloomberg published a report saying that “The Federal Reserve’s hawkish stance is driving up interest rates almost everywhere — except in the speculative world of crypto, where yields have collapsed along with volumes, wiping out some of the main avenues for generating double-digit returns , while the implosion of the Terra stablecoin project and the failures of cryptolenders like the Celsius Network shook confidence.”

Jaime Baeza, CEO of crypto-focused hedge fund ANB Investments, told Bloomberg:

“Two years ago interest rates in crypto were at least 10% and in the real world interest rates were either negative or almost zero. Now it’s almost the other way around, because interest rates in crypto have collapsed and central banks are raising interest rates.“

The Bloomberg report further pointed out that “unlike in traditional markets, falling yields do not signal lower risk for crypto” since “returns are shaped by trading volumes rather than risk sentiment, and reflect the rate at which an investor can hope to profit from lending out holdings at exchanges and decentralized financial protocols, or depositing them with crypto lenders, often in the form of stablecoins.”

The report also stated that “because they have no direct relationship to central bank rates, crypto rates could fall even as borrowing costs rise across financial markets to reflect steep Fed hikes.”