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- The decision was made based on shifting market circumstances
- Enhanced borrowing demands as compared to earlier quarters
- No major lending desks are planning to lower their rates
BlockFi, the crypto-lending firm, is slashing interest rates on several crypto coin deposits. The latest move comes just three months after another rate cut which was affected in March. BlockFi said the decision to cut interest rates was based on the changing dynamics of the market and borrowing demands from institutional investors.
A move to attract the deposits
However, this time BlockFi move has evoked no response from crypto lending desks, including Genesis and Canada-based Ledn. When BlockFi cut rates in March, many crypto lenders had followed suit but not this time, at least for bitcoin (BTC, -1.56%) deposits. Officials are viewing this as a move to attract the deposits to lend them out due to enhanced borrowing demands compared to earlier quarters.
New Rates to become effective from July 1
BlockFi has announced that lower interest will apply on all crypto-tokens, including bitcoin, ether (ETH, +5.02%), chainlink (LINK, -0.92%), litecoin (LTC, -0.49%), and a few others from July 1, 2021. The annual percentage yield (APY ) for bitcoin over 20 BTC will go down to 0.25% from 0.5%.
Interest rates on cryptocurrencies held by BIA (BlockFi Interest Account) are fixed by demands for these assets by institutional investors. It was revealed by Rishi Ramchandani, director of business development at BlockFi in Asia. Institutional investors demand new services, which affects the interest rates offered to the BIA clients.
Ramchandani also said that BlockFi’s clients’ borrowing demands are increasing, but the period of the loans has become shorter along with interest.
No major lending desks are planning to lower their rates shortly. Matthew Ballensweig, head of institutional lending at Genesis, informed via email to a leading daily that despite BlockFi rate reduction, Genesis is not lowering Bitcoin interest rates. It will continue to pay 2.0% since the bitcoin lending market is still going strong.
Canadian Crypto lender Ledn has also said that it will not change the interest rates for Bitcoin deposits. A top official gave this information at Ledn. APY for bitcoin accounts with a minimum 2BTC is 2.25%. Len slashes deposit rates on the stablecoin USDC (+0.05%) to 9.5% from 12% starting on July 1.
Babel, another crypto lender, based in Hong Kong, informed via its spokesperson that it is also not going to lower its rates for Bitcoin. However, it did cut rates for Tether (USDT, +0.04%) deposits in May.
However, all the three leading companies in unison said that bitcoin borrowing demands from clients have increased.
Spot cryptocurrency prices and futures
Investors are playing the premium in-between spot cryptocurrency prices and futures. Investors are hoping the market, which has flattened recently, could widen again, and the bitcoin borrowing is to short the spot market against a long position in the futures market.
Some investors put their money in the “cash and carry” arbitrage strategy. When futures are going for a premium to the spot price, investors buy bitcoin and short the futures. They bet on the convergence of the two prices later when the futures contract matures.
Matthew Ballensweig said that reduction in the near-dated futures and spot basis spread meant more opportunities to invest in bitcoin than last month.
Genesis Q1 report in 2021 blamed wide spreads between bitcoin futures and spot markets as one of the reasons for poor borrowing demands in the quarter. The report added that borrowing BTC to short spot and long futures to bet on a widening curve is not wise, especially when the logic is trading wide. Genesis dropped its interest rates in March along with BlockFi.
Major exchanges, including Binance, Huobi, OKEx, Deribit, and Kraken, are showing bitcoin’s July expiry futures listed on are currently drawing an annualized basis of -20% to 3%.
Mauricio Di Bartolomeo, the co-founder of Ledn, added that lowered interest rates of USDC help reduce the cost of bitcoin-backed loans.
Decentralized finance (DeFi) opens the source of borrowing demand for bitcoin from institutional investors who seek to convert bitcoin to wrapped bitcoin (WBTC, -1.51%). These refurbished versions of bitcoin are configured to run on the Ethereum blockchain, where they can be d
With a background in journalism, Ritika Sharma has worked with many reputed media firms focusing on general news such as politics and crime. She joined The Coin Republic as a reporter for crypto, and found a great passion for cryptocurrency, Web3, NFTs and other digital assets. She spends a lot of time researching and delving deeper into these concepts around the clock, and is a strong advocate for women in STEM.
