The Founder of popular crypto lending and borrowing platform Celsius, Alex Mashinsky, has announced that on February 1 the platform will begin offering compound interest on cryptocurrency deposits.
Compound interest is when the interest earned on a deposit is immediately re-invested so that the money earned from interest immediately accrues interest. This leads to exponential growth, versus non-compound interest which accrues money in a linear fashion.
Apparently Celsius offers 8.1% interest per year on the first deposited Bitcoin (BTC), although it seems rates beyond that are lower. In any case, the interest rates on Celsius far exceed the interest paid to those who save money at a bank, which is typically around 1-2%.
The big caveat is that Bitcoin’s (BTC) value is quite volatile, so even if interest is accrued during a year, the total USD value of the Bitcoin (BTC) plus interest at the end of the year could have a lower USD value than the Bitcoin (BTC) deposit at the beginning of the year.
That being said, Bitcoin (BTC) has been the most profitable asset class long term. Generally if someone can wait through the bear markets Bitcoin (BTC) can end up being immensely profitable, especially if that Bitcoin (BTC) is receiving compound interest.
Overall, with the addition of compound interest at Celsius it seems the crypto finance industry is becoming more competitive with traditional finance.