Cryptocurrencies are in for an exciting time. The winter of crypto is still here, despite bulls fighting to push Bitcoin to new highs. It's the market around the cryptocurrencies that has dramatically shifted the goalposts in the time since the winter started. The change has been so drastic that many in the industry are wondering if regulators will ever be able to catch up.
Hold And Earn: Newest Crypto Assets
The newest in a long line of crypto asset returns have been heralded by headlines proclaiming the impossible. You don't need to trade to earn. You don't even need to realize profits from paid wor to earn. Now all you need to do is… holding on to the cryptocurrencies and the tokens.
Take the example of Coinbase. The company announced that it would offer staking services to institutional clients. These clients would have to hold the tezos blockchain native coin XTZ. Simply holding the coin would give the institutional clients a 6.6% return on investment. The amount invested would be held in a cold wallet. Any coins that would need to be online for the stake to be processed would be put up by Coinbase themselves.
Then there is the new staking network which is going to be launched by Battlestar Capital. They have partnered with Celcius, a crypt lender. The staking network will offer returns of between 5 and 30 percent on proof-of-stake token deposits.
Those are just two of the largest firms that are letting people earn money for holding a token and nothing else. No mining, no trading – nothing. The market is also paying more attention to the amount of money that is floating around in the crypto lending sector.
This was evidenced by a massive surge of crypto into the interest-bearing crypto accounts at BlockFi. There is also the deposits arena. TrueUSD users can deposit tokens with Cred for up to 8% in interest. The tokens would need to be deposited for longer than six months. The Universal Protocol Alliance (UPA) is launching a stablecoin pegged to the Euro. That coin can then be deposited for an 8% return on investment. The UPA is made up of, among others, Cred and Bittrex.
What to call the earnings though? Some companies call them yields. Other companies call them dividends. Others till call the earnings rewards or interest. It's a staple of the cryptomarket that the terminology can be very confusing.
Increasing Maturity Resulting In Better, Stable Options
It is interesting seeing investors looking for a stable return on investment from cryptocurrency. Price appreciation is where the majority of the money made in crypto has come from – but that is changing. Many in the financial industry believe that this is due to maturity in the market. It doesn't mean that everyone has given up on price appreciation. It just means that the market has expanded to include different types of investors.
Still, many industry veterans say that the process of devising yield strategies with regards to crypto feels somehow new. Along with that feeling of “new”, comes a feeling of “same old”. The same old regulatory burdens that are nipping at the heels of any company that comes out with a new product.
The layers added by these new products that offer a consistent rate of return will muddy the regulatory waters. Interest-bearing accounts are traditionally the domain of banking authorities. Crypto assets don't fall under any banking authority. That leaves the question of who would regulate crypto-based interest-bearing accounts?
Then look at the products offered by BlockFi. They offer interest on Bitcoin and Ether that you deposit for when you stake. The products have been classified as commodities by the Commodities Futures Trading Commission (CTFC) but there's a problem. The CFTC may only regulate commodity-based derivatives. They don't have any regulatory power over commodity-based yields.
Then there are the finer details. Looking at the business behind the Battlestar and Coinbase announcements we see management of proof-of-stake tokens. That's simple enough to understand. However, the expectation of profit form the venture would then push the tokens more into the securities market.
This is why many industry veterans are wary. Products are being released today that are long term in character. The problem with that is the regulation is not yet there to guarantee those products will be legal even 6 months from now.