In general, the returns that cryptocurrency exchanges offer for renting Bitcoin are around 6% per year. Most of those platforms require users to give them control over their BTC holdings.
Some cryptocurrency exchanges periodically pay their customers a certain percentage of interest for renting their Bitcoin (BTC) holdings. Each of those platforms has its strategy to generate profits with the coins of the users who deposit them.
Those companies usually use them to have liquidity and offer loans but can also serve as intermediaries between users and decentralized finance (DeFi) platforms. However, people can only live off the interest of their bitcoins, depending on how much they have deposited and two other factors.
Three Crucial Factors that Users Should Consider
Those three factors can vary significantly, depending on the different cryptocurrency exchanges and countries. Those aspects are the amount of money that users need, the current price of BTC, and the interest rate that those platforms pay.
People first must establish how much money they want to earn by taking monthly minimum wage as a reference. For example, a study by the Picodi agency indicates that it is EUR 975 in Spain, USD 265 in Colombia, and USD 254 in Mexico. Considering those figures, they may want to obtain about USD 500 per month.
Users also have to evaluate the interest rate that each platform offers. According to developer Jameson Lopp, the most used exchanges pay between 4.06% and 6.25% in BTV per year, weekly or monthly.
Of course, it is necessary to consider the extreme volatility of the price of BTC. Some analysts indicate that it is close to its bottom, so it would not fall further below USD 40,000.
Users may want to earn USD 500 per month (USD 6,000 per year), with a 6% annual interest, and Bitcoin at USD 40,000. They would need to deposit 2.5 BTC, equivalent to USD 100,000, on the cryptocurrency exchange of their choice.
Users Choose Between Profitability and Secure Self-Custody
It is relevant to clarify that those platforms require that users transfer the custody of those bitcoins to them. That goes against the Bitcoin maxim that states that (if they are) not your keys, (they are) not your coins. Therefore, users investing in that way must understand they are placing their trust in a third party with all the inherent risks.
Contrary to the above analysis, Bitcoin has shown a downward trend, so the monthly returns would be lower unless its price rises. Potential investors should evaluate the situation carefully and not make rented BTC their only source of income.
They should also consider tax issues since all platforms have their respective jurisdictions. For that reason, the local regulator may require that they share customer information. Besides, those investing must evaluate how much of their earnings would go to the state coffers.
This analysis is not investment advice but a sample of what is possible if the user has the necessary capital. In that way, they can rent BTC and generate passive income without selling it.
By Alexander Salazar
