Gemini Gets into Bitcoin Banking with High-Interest Deposit Accounts

The digital assets exchange and custodian Gemini wants to be the go-to bank for digital assets. On Tuesday the company, founded and run by Tyler and Cameron Winklevoss, launched a deposit-taking service called Earn, which lets customers store their digital assets […]

share

key takeaways

  • Gemini’s Earn product allow depositors to earn between 1.5 percent and 7.4 percent depending on the asset
  • Interest-bearing accounts are popping up among crypto companies that are becoming increasingly well positioned to challenge neobanks

The digital assets exchange and custodian Gemini wants to be the go-to bank for digital assets.

On Tuesday the company, founded and run by Tyler and Cameron Winklevoss, launched a deposit-taking service called Earn, which lets customers store their digital assets holdings — including bitcoin and ether — into accounts that earn between 1.5 percent and 7.4 percent interest, depending on the asset. 

Gemini generates interest on deposits through institutional and corporate lending partners like Genesis, who lend the assets out to institutional borrowers for even higher yields. Gemini collects part of the spread between the interest those borrowers pay and the interest Genesis charges on the loans. The lending partners are vetted to ensure their loans are sufficiently collateralized, a Gemini spokeswoman told Blockworks.

The market for digital assets is expected to grow at a compound annual growth rate of 32 percent between 2019 to 2024 thanks to fluctuating monetary regulations and an increasing amount of venture capital investment, among other things. And while crypto lending is still niche, it’s growing. Fidelity now accepts bitcoin collateral for cash loans (through a partnership with Gemini competitor BlockFi); and Genesis reported $19 billion in loan originations in 2020, compared to $3.1 billion in 2019.

“The digital currency space is an emerging market with a very strong growth profile,” said Michael Moro, CEO of Genesis. “We expect there to be ongoing pockets of volatility, but overall, we’re incredibly bullish on its long-term prospects.”

The Earn accounts will be available for 26 different assets and to anyone in the U.S., including New York, which is often excluded from new digital asset services due to rigorous regulatory requirements. The launch comes less than a month after Gemini unveiled a credit card that earns users 3 percent back in bitcoin.

Gemini is the custody provider to BlockFi, which was founded as a lender of digital asset-backed loans and also launched an interest account two years ago (and announced the forthcoming launch of a bitcoin-back credit card in December). Loans made through Gemini’s Earn program, however, are unsecured; borrowers aren’t required to post collateral to the lenders or to Gemini.

BlockFi, whose interest account is available in all states except New York, pays 6 percent compound interest on bitcoin at the beginning of every month and 5.25 percent on ether. Customers can also earn between about 5 and 9 percent on different stablecoins. 

Digital asset neobanks

As more companies look for ways to not only attract new investors but also keep them on their platforms, they’ll continue to bundle financial services and wealth management offerings. That trend is already gaining steam among prime brokerages. It’s also been the story of digital-first banking services for the last 10 years; companies like SoFi launched as single-purpose products (mostly online lenders at first) during or in response to the 2008 financial crisis. Like SoFi, many of them today have since added investing, deposit accounts, credit and debit cards and even cryptocurrency buying and selling to their platforms.

Between 2018 and 2019 there was a boom in financial apps launching high-yield savings accounts (with annual percentage yields between 1 and 3 percent) with the short-lived promise that customers would earn at least 100x the national average savings rate. The Federal Reserve had raised interest rates nine times since 2015 but in mid-2019 it began cutting them a quarter of a percentage point in July, September and October. In March of last year its two emergency cuts brought the range to between 0 percent and 0.25 percent and all those high-interest savings account rates fell below 1 percent.

Today, they still push rates of 0.5 percent, for example, as a life-changing difference from 0.01 percent to 0.05 percent you would earn, as of Tuesday, saving at Chase, Citi, Bank of America and Wells Fargo.

Meanwhile, all that missing yield is popping up at digital asset firms that could lure disgruntled customers who have newly heightened expectations for how much return their deposits should earn them. Beyond Gemini and BlockFi, decentralized finance apps like Compound and dYdX let customers earn high interest on assets; Circle is building short- and medium-term business accounts that’ll earn customers interest on its USDC stablecoin; Linus markets its interest account as a “reimagined” savings account, “but you get 64x more”; and Crypto.com offers high yields based on simple daily (rather than compound) interest.

And with more interest and legitimacy flowing to the digital asset industry and bitcoin buying apps like Square’s Cash App and Abra making additional stock trading available to customers, full-suite digital asset wealth management firms like Gemini are increasingly well-positioned to become the competitors to traditional neobanks.

Tags

Upcoming Events

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

MON - WED, MARCH 18 - 20, 2024

Crypto’s premier institutional conference returns to London in March 2024. The DAS: London Experience:  Attend expert-led panel discussions and fireside chats  Hear the latest developments regarding the crypto and digital asset regulatory environment directly from policymakers and experts   Grow your network […]

recent research

Research Report Cover.jpg

Research

Tokenized assets reflect crypto's growth as a legitimate asset class and the adoption of blockchain technology by traditional financial players and markets. They appeal to a different vertical beyond niche crypto circles, by allowing institutions to increase efficiency and lower costs and emerging market retail users to access foreign debt, equity, and currencies.

article-image

The proposal’s author called the voting power boost for active delegates an experiment in accountability for DAOs

article-image

There is yet another legal battle unfolding in the Gemini and Genesis saga

article-image

The pseudonymous Rijndael’s hiring comes as bitcoin ordinals spurred a takeoff in bitcoin transaction fees over recent weeks

article-image

Bitcoin and ether posted gains Wednesday morning, rallying around 2% and 5%, respectively. Stocks also started the day in the green

article-image

Blockworks exclusive: Spool is in talks with small and regional banks as well as one of the ten largest asset managers as it rolls out v2, the DAO’s lead contributor said

article-image

Can an ERC-20 token fix science? Coinbase’s Brian Armstrong hopes so