In 2020, we earned well over $1 million in interest payments only with Crypto Lending. We diversify our funds by investing in different currencies and on different platforms. Let us inspire you to become an #InterestChamp.
Crypto lending success stories are becoming more common on Crypto Twitter. People are already competing for the title of the #InterestChamp; and with interest payouts of well over $1 million, we at CryptoStudio might currently be leading the pack. But we are certainly not the only crypto lending millionaires out there because earning high interest income with crypto lending is not rocket science; it's strategic investing. That means everyone can do it, including you. Maybe you can even become the new #InterestChamp?
How to become a crypto lending millionaire?
We started with about $2 million in capital, consisting of stablecoins (USDC), Bitcoin (BTC), Ethereum (ETH), and a few altcoins, including LINK, BNB, and ICX. Obviously, it helps to have a seven-digit starting capital to earn more than a million dollars from interest payments alone.
But even if you don't have that much capital at your disposal, you can still earn the same return on investment as we did. Sure, your total interest payouts will be lower, but the strategies that we show you here are suitable for all portfolio sizes. Since transaction costs in the crypto market are almost non-existent compared to other asset classes, you can easily split small amounts across multiple platforms and currencies without paying high transaction fees.
So if you don't have $2 million on hand right now, this article is still relevant for you. Check out how we invested in 2020 and decide for yourself which of our strategies you want to adopt for your portfolio - no matter how big or small your AuM.
Strategic Focus 1: Platform and currency diversification
Last year, we spread our crypto assets across six platforms, all of which we also feature in our platform reviews: BlockFi, Nexo, Crypto.com, Aave, and Cake. We chose these platforms because they presented the most attractive opportunities for us last year.
We generally don't recommend investing all your assets on just one platform because you'll expose your portfolio to unnecessary concentration risks. We also invest only a part of our total crypto assets in lending because even though lending should be relatively secure, you do bear risks that are mainly related to the individual platform providers.
Strategic Focus 2: Native lending tokens
Over the past year, we conducted most of our lending activities at BlockFi - the biggest players in today's market. There are critical differences between Celsius and BlockFi which every investor should know: for example, the fact that Celsius offers a platform token, the CEL token, whereas BlockFi does not offer any platform token.
We invested BTC and stablecoins with Celsius and later added altcoins to our Celsius portfolio. At Celsius, you earn higher interest rates if you choose to cash out your interest in CEL. Since we assumed that Celsius would establish itself as one of the leading players in the market, we have been drawing our interest in CEL tokens every Monday – in hindsight, that was a smart decision. We earned over 250,000 CEL tokens in 2020 and had one of the top 200 Celsius wallets by the end of the year.
The value of CEL increased from $0.14 at the beginning of the year to $5.50 in December 2020, making the token a fantastic investment. In total, Celsius Network paid out $235 million in interest to savers in 2020, calculated based on the year-end value of the CEL token. Since we hold more than 20% of our portfolio assets at Celsius in CEL tokens, we became a platinum member and earned the maximum interest rates.
Strategic Focus 3: ETH Accumulation
We also invested a large part of our assets with BlockFi. We particularly like the "flex option" at BlockFi that allows us to choose either BTC, ETH, Litecoin (LTC), or a stablecoin for interest payouts. So you can invest in different currencies and then have all your interest paid out in ETH, for example. Most other platforms don't give you that flexibility and only allow you to cash out in the investment currency ("in-kind") or platform tokens.
We invested mainly in stablecoins and ETH on BlockFi. We had our interest paid out entirely in ETH because we expected a positive performance of the currency in 2020 – again a smart decision in hindsight. For smaller BlockFi portfolios, we recommend investing in BTC, as the rate for the first 2.5 BTC is 6% interest, which is relatively high compared to other platforms. So you could invest BTC and then get paid 6% interest in ETH.
Strategic Focus 4: Newcomer Platform Tokens
Cake is a relatively young lending platform that is focusing more on the European market. Last year, Cake distributed interest payments in-kind and paid out an additional 2% in the platform's native DFI token. Today, the payout is only in-kind. To get DFI tokens, you now have to be a member of the so-called "Cake confectionery," meaning you have to obtain a premium membership.
Last year, Cake organized an airdrop where Cake users and Bitcoin lenders could receive additional DFI tokens. Since we had both ETH and BTC invested with Cake, we took part in the airdrop and accumulated about 40,000 DFI in total in 2020. These tokens significantly increased in value over the year.
Strategic Focus 5: Temporary opportunities
We also invested money with Nexo at the beginning of the year because Nexo pays high interest on stablecoins. As the crypto market turned increasingly bullish during the year, we wanted to earn our interest in cryptocurrencies that have the potential to increase in value; rather than stablecoins. Nexo thus became less attractive, so we shifted our assets from Nexo to other platforms, apart from altcoins with lower market caps such as BNB.
Rates on the more exotic coins like LINK, ADA, MKR, and ICX were quite attractive on Crypto.com last year. Crypto.com also paid up to 18% interest on the platform's native CRO token. Unfortunately, Crypto.com reduced its rates significantly at the end of the year, which is why we withdrew most of our assets there as well. We kept only BTC on the platform because the interest is still relatively high.
The only DeFi lending platform we used last year was Aave, where we could benefit from extremely high rates during the "DeFi summer." That's also the reason why Aave's Total Value Locked (TVL) has gone from about $40 million since summer to over $3 billion now.
Our best decisions in 2020
Our best decision was to focus on crypto lending in the first place. The market was still nascent and underdeveloped at the beginning of the year - in many ways it still is today - which means we took some risks. As our performance shows, we got compensated for this risk-taking overproportionally.
Then it was a great decision to cash out our interest on Celsius Network in CEL tokens. CEL is up from $0.14 in January 2020 to about $5.50 in December. We benefited not only from the high interest rates but also from the increase in token value. The same is true for the DFI token, which also performed exceptionally well over 2020. Additionally, all investments with Bitcoin and Ethereum as payout currencies turned out great. Both currencies saw significant gains in 2020, especially towards the end of the year. On the contrary, any payout in stablecoins contributed comparatively little to our 2020 performance.
Financial education is your starting point
To conclude, here's the main takeaway from this article: Crypto Lending returns mainly depend on two performance drivers: the interest rate and the price appreciation of the payout currencies. Based on the interest rate alone, we would not have earned over $1 million in interest last year. However, as the value of our interest payouts increased significantly over the year, our total return has skyrocketed.
One more thing we need to clarify: This article intends to give you insights into our investment decisions, but it does not necessarily provide a guide for 2021. We will also be making strategic adjustments for this year; we will talk more about that in other blog posts. For your own portfolio, you will have to make your own decisions, and for that you'll need investment knowledge and financial education. Warren Buffett once said, "Risk arises when you don't know what you're doing."
Learn how crypto lending works in our lending ABC before you invest your hard-earned cash. You can use our platform reviews to find the platform that fits your needs, and you can compare interest rates with our interest rate tables.
And if you ever earn more than we do, let us know. Then we'll make you the #InterestChamp on Twitter :)