Crypto loans reportedly offer worse returns than 3-month US Treasuries

According to a recent Bloomberg report, “the crypto yield typically sought by institutions has fallen below what the US government pays to borrow for three months, giving the hedge funds and family offices that have flocked to the space less of a reason to to continue investing.”

Here is how Investopedia defines crypto loans:

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

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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 in Bitcoin, you can earn 2.75% APY:

Treasury bills (or Treasury bonds) are debt securities – with a maturity of one year or less – issued by the US Treasury.

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

On September 13, Bloomberg published a report that “The Federal Reserve’s hawkish stance is driving up interest rates almost everywhere — except in the crypto world’s speculative, where rates have crashed along with volumes, wiping out some major opportunities for double-digit generation returns, while the implosion of the ​​The Terra stablecoin project and failures of cryptolenders like Celsius Network have shaken 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 negative or close to zero. Now it’s almost the opposite, as crypto interest rates have crashed and central banks are raising interest rates.

The Bloomberg report went on to point out that “unlike in traditional markets, falling interest rates do not signal lower risks for crypto,” as “returns are shaped by trading volumes rather than risk sentiment and reflect the rate an investor can expect to earn on loans. .”.hold assets on decentralized financial exchanges and protocols, or deposit them with crypto lenders, often in the form of stablecoins.

The report also stated that “because they have no direct link to central bank rates, crypto rates can fall even as borrowing costs rise in financial markets to reflect strong Fed hikes”.

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