How do bitcoins have a risk-free interest rate?
The best way to find a risk free interest rate for the Cryptocurrency is by finding an analogy between fiat currency and cryptocurrency.
Cryptocurrencies or most notably Bitcoin are the decentralized currency. The Government holds no authority over it. As the Cryptocurrency trade is done over the trust. Without trust and confidence, Cryptocurrency will lose all its value. If you are really interested in the Cryptocurrency trade then you can use the bitcoin code to make your first deal.
There are some people who consider Cryptocurrency to be spam, where on the other hand, there are some people who think Cryptocurrency as a future currency. Different opinions are to be expected, after all, many people have gain fortune while many have lost their savings.
Cryptocurrencies are highly volatile and maybe this is the reason why the investors are head over heel over the Cryptocurrencies. And it is a fact that the Cryptocurrencies are no way similar to that of fiat currencies.
What is the Risk-Free Rate of Bitcoins?
This question has been asked much time after the U.S government decided to tax Crypto asset holders. And you all be happy to hear that there is certainly away. If you are a trader holding Crypto assets for passive income, then you can surely enjoy a risk-free rate. On the contrary, this is only possible when your Crypto assets are bringing in the same profit every year.
However, if you are investing Cryptocurrency on one platform for a longer period of time, then you are risking your Crypto assets.
There is another possible approach for you to have a risk-free interest rate on Cryptocurrency. Cryptocurrencies are the decentralized currency that is not influenced by any government. So, you can consider them to be risk-free assets.
There are risk-free government bonds and these government bonds are divided into small derivative assets. A small change in these derivatives can bring change in the Government risk-free bonds. The same concept can be utilized for the Cryptocurrency.
The Influence of Dollars on Risk-Free Rate
As mentioned above, the Risk-Free interest of the Cryptocurrency can only be considered complete if you are holding every bit of your Crypto assets. There are many Cryptocurrency exchange that has their respective derivatives. But these Cryptocurrencies are not settled in Dollar but in their respective Crypto coins.
Risky Return of the Cryptocurrency
Every Cryptocurrency has its own exclusive value, so holding them passively will not bring you enough interest. We have already discussed in the above section on how the Cryptocurrency has a risk free interest rate. In this section, we will discuss the risky rate of the Cryptocurrency.
If you will look in the market you will find there are many brokers offering interest on the Crypcoin savings. You must be thinking that how they are able to offer such services. Well, if you see from a wider perspective, you will be able to see that the logic used is very simple. The investor lends Cryptocurrency to the provider and the provider lends it again for a higher rate to the other person. And the difference between the two prices will be the provider’s gain.
You must be clear of the fact that that this lending business is not at all risk-free. This kind of business is usually done via “Crypto banks”. And Crypto banks are not associated with the central banks(we all know that).
But the positive side of this kind of deal is that the interest rate are much higher than that of Government Banks. So you will be able to earn more profit.
The best way to find a risk free interest rate for the Cryptocurrency is by finding an analogy between fiat currency and cryptocurrency. As we all know that traditional currency invested in government bonds, and market returns, all have a risk free interest rate. So, if there is an analogy between the two, then Cryptocurrency will also be able to enjoy a risk-free interest rate.
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