Why Genesis, BlockFi, Ledn Are Cutting Interest Rates on Large-Scale Bitcoin Deposits

Genesis is cutting bitcoin deposit rates effective Thursday, following BlockFi's reduction last week.

Mar 31, 2021 at 7:00 p.m. UTC
Updated Sep 14, 2021 at 12:34 p.m. UTC

Crypto lending firms including Genesis and BlockFi are cutting the interest rates they pay on large-scale bitcoin deposits, potentially signaling an end to the glorified 4% to 6% levels that have served as a staple of the lucrative market.

Behind the cuts in the crypto interest rates, according to industry executives, is shrinking demand from big traders to borrow bitcoin (BTC) for easy profit opportunities. There is simply too much bitcoin supply in search of yield, relative to institutional demand. So the bitcoin lenders are protecting their margins by cutting deposit rates.

Starting Thursday, Genesis Global Trading, a full-service digital-currency prime broker, plans to refinance bitcoin deposit rates for institutional lenders and deposit-platform partners to a range of 2% to 3.5%, Matthew Ballensweig, lending director at Genesis, told CoinDesk in an email. Genesis is owned by Digital Currency Group, which also owns CoinDesk.

"We're currently showing rates closer to 3.5% to 5.5%," Ballensweig wrote. "Inflated rates are not truthful of the underlying market.”

Table shows adjusted yields by account tiers.

Last week, BlockFi, a cryptocurrency firm, lowered rates to an annual percentage yield (APY) of 2%, from 3%, for accounts holding one to 20 BTC. The firm also introduced a new tier for accounts holding 20 BTC and above, paying just 0.5%.

"Rates at BlockFi reflect market conditions, which evolve based on a variety of factors, " Zac Prince, CEO of BlockFi, wrote in an email to CoinDesk.

And Ledn, a Canadian cryptocurrency lender, announced March 26 that it will cut interest rates effective April 1 on balances greater than 2 BTC.

"The market can no longer support paying 6% savings rate for all of our clients," Ledn said in a tweet.

According to analysts and industry executives, a key factor leading to lower institutional borrowing of bitcoin is the flip of what is known as the "Grayscale premium" to a discount.

That refers to the difference between bitcoin's price in spot cryptocurrency markets and the price for BTC as implied by the net asset value (NAV) of the Grayscale Bitcoin Trust (GBTC). (Grayscale is another CoinDesk sister company.)

When the Grayscale trust traded at a premium to NAV, hedge funds and other investors could borrow bitcoin and deliver those to the trust in exchange for GBTC shares. After a six-month lockup, the shares could then be sold on the secondary market to retail investors, typically at a premium. Proceeds were then used to pay back the lender for the borrowed BTC at a profit.

But based on the current GBTC discount, there's no longer an incentive on the part of large traders to borrow BTC for the opportunity.

Given the industry dislocation, some crypto lenders see an opportunity to pick up market share.

"We actually saw record net deposits ($90 million a day) and record loans since BlockFi lowered rates," Alex Mashinsky, CEO of Celsius Network, a cryptocurrency lending platform, told CoinDesk in an email. "We actually raised a few rates we pay in the past week and plan to raise further if our income continues to rise."

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