GMO Coin Offers Bitcoin Deposits

One of the divisions of the Japanese Internet giant GMO Internet, the GMO Coin crypto exchange, offers its clients a new type of income: interest on cryptocurrency deposits. The mechanism for the “growth” of bitcoins remains unclear. After all, traditionally, banks take money from depositors, and then issue loans in fiat and receive income thanks to the difference in interest rates. Bitcoin, on the other hand, increases in value over time and has no demand for loans.

The competitive selection of participants for this project began on Monday and will last until May 2. From clients whose applications are moderated, the exchange will accept 10 BTC in order to return them and another 0.123 BTC after three months. This amount of interest growth corresponds to a profitability level of 5% per annum in terms of 90 days.

Of course, during this period an experienced trader can make much more profit. But the exchange explains the purpose of this project by the fact that it is not designed for exchange players, but for hodlers and ordinary cryptocurrency holders who use it exclusively as an investment object. The deposit agreement assumes that the client has the right to withdraw his 10 BTC from the account at any time, but in this case he does not receive any interest and, moreover, pays a commission to the exchange for breaking the agreement.

Currently, the mechanism for accumulating interest is completely unclear. After all, Bitcoin is too different from fiat currencies, so the classic options don’t work here. 

Classical interest rates indicate that the financial structure that offers them operates in a system of fractional reserves. After all, in order to earn interest that exceeds the value of the asset itself, he needs to invest the assets entrusted to him.

And the basic philosophy of cryptocurrencies is to provide people with a reliable alternative to the official financial system, and to ensure anonymity and speed of transactions. 

The question is where the “extra” bitcoins might come from:  speculative trading?  mining?  some hedge fund?  How does the company intend to generate additional income?  Perhaps GMO Coin plans to use assets for crypto trading, another option is to invest in mining, GMO Internet has plans to invest in this area.

This is not innovation in the field of attracting customers and funds. In May last year, the Coincheck exchange launched a similar service that allowed exchange clients to make deposits in cryptocurrency with a fixed interest rate. Users of the site were offered four deposit options: for two weeks at 1% per annum, for a month at 2%, for a quarter at 3% and for a year at 5%. Unfortunately, we do not have information about how many Coincheck clients took advantage of this opportunity and what were the results of last year’s project..