The twin specters of rising interest rates and escalating geopolitical tension are spooking the crypto markets, with the price of bitcoin falling from $68,000 in mid-November to below $50,000 in mid-December. Yet, this sharp move in the trading markets is not being seen in the investing markets. Put simply, there is a rotation underway as crypto users look for ways to earn interest and move away from a purely trading mentality.
Data from Vauld’s platform supports this observation. In the past two months, the total assets under management (AUM) within Vauld has more than doubled, and 86% of this total AUM is now invested in Vauld’s fixed-deposit product, not in its trading accounts.
This is somewhat counterintuitive, given that periods of rising inflation and rising interest rates tend to be seen as bad for fixed-income products. But for crypto deposits, rising interest rates in traditional markets are a positive thing because the average percentage yield (APY) on crypto accounts can rise as well.
Vauld was established three and a half years ago as a crypto lending and trading platform out of Singapore with backing from multiple venture-capital investment firms. It currently serves 350,000 customers, primarily in the Asian market including India. Vauld works by aggregating capital, which is then deployed to generate a yield that is passed on to its customers. It also has a brokerage platform where customers can execute orders on Binance, with little slippage and low fees.
Key to understanding the attraction of investing for yield is the motivation of investors to accumulate wealth rather than to gamble. The most powerful force ever invented for wealth accumulation is compounding. Put simply, an interest rate of 7% a year can roughly double the value of a deposit in 10 years. A deposit of $10,000 dollars would be worth $19,600 after 10 years in a deposit account paying 7%. A similar amount in a deposit account that paid 12% would triple over the same time period.
Since the global financial crisis of 2007 and 2008, interest rates in traditional markets have been cut to zero and are only starting to creep up. Given how long interest rates have been this low, investors could have developed some kind of collective amnesia when it comes to the magic of compounding. But again, data from Vauld’s platform shows the desire for steady compound returns still burns strong: 92% of its customers’ fixed-deposit accounts are always on auto-renew mode, meaning people want to stay invested.
Looking at the APYs on offer, it’s not surprising investors are acting this way. Stablecoins such as USDT and USDC pay APYs of 12.68%, while bitcoin deposits generate APYs of 6.7%. Combine this with time in the market and it is a powerful means of building wealth, without worrying about the day-to-day volatility of trading prices of the underlying coins and tokens. Vauld’s fixed deposit product has additional features that make it attractive in comparison to other platforms. There is no tiering and no minimum token requirements. And there are additional features including automatic investment plans and curated token baskets, which further help investors to meet their accumulation goals.
And it’s not just individuals. Corporates are increasingly looking into the opportunities to have a crypto cash management program that offers genuine returns distinct from the fiat markets.
In many ways, this explosion of interest in investing for yield is an indication of the growing maturity of the participants in the crypto markets, which are no longer seen as a casino-like arena where all that matters are big bets on price movements. The irony of this is the crypto markets are now offering a more orthodox avenue of investment than the traditional markets.