Regarding my Interest in Compound Interest
It All Adds up in the End

Regarding my Interest in Compound Interest


DISCLAIMER 1:

I updated the mathematics around 2021-03-03 01:45am PST after alert reader F4r1s highlighted a flaw in my calculations. I regret my error.

DISCLAIMER 2:

The links to the crypto sites in this article are affiliate links. Furthermore, I use shorte.st to shorten hyperlinks. I get a few cents when users click the links, and I get rewarded if users register using these links. However, my personal experiences with these sites have been beneficial enough that I can promote them without feeling like a shill.

I will gladly provide clean links upon request.


When I write my #SatoshisSaturday blog posts, I often refer to a "satoshi snowball." The premise is that I want to turn a series of small investments into a a large fortune. To accomplish this, I rely on a combination of compound interest, external deposits, and reinvestments.

Let me explain why I emphasize compound interest.


A COMPOUNDED BITCOIN CAN GO A LONG WAY

The following interest calculations are performed by the Compound Interest Calculator at Calculator Soup.

One comment I've made often is, "If I can get a balance of 1 BTC on FreeBitco.in, that will be a huge boost to my daily earnings."

As of 2021-03-02, FreeBitco.in awards 4.08% interest, compounded daily, on balances at or above 0.00035 BTC. A balance of 1 BTC would yield 10,956 satoshis in interest. The next day, the new balance would yield 10,957 satoshis. The day after that would generate 10,959 satoshis.


MAKING (DOLLARS AND) SENSE OF COMPOUND INTEREST

As of 2021-03-02 10:30am PST, 1 BTC is worth $47,808.10.

For simplicity of calculations, I'll round the value down to an even $47,000.

Starting with FreeBitco.in as an example, 1 BTC would be 1.04080000 BTC a year later.

Cointiply pays 5% annual interest, compounded weekly, for balances above 35,000 Cointiply coins (1 Cointiply coin is always one-hundredth of a US cent... in BTC). A balance of $47,000 would be worth about $49,350 one year later.

BlockFi pays 6% annual interest, compounded monthly, for BTC balances at or below 2.5 BTC. A balance of 1 BTC would be worth 1.06000000 BTC a year later. BlockFi also pays 9.3% annual interest, compounded monthly, for the Tether stablecoin. $47,000 of USDT would be worth about $51,371.00 a year later.

CoinLoan pays 5.2% interest, compounded monthly, for BTC balances. 1 BTC would be 1.05200000 BTC a year later. Coinloan also pays 10.3% annual interest, compounded monthly, for a variety of stablecoins such as USDT and USDC. $47,000 of a qualifying stablecoin would be worth $51,841.00 a year later.

$1,917.60 to $4,841.00 per year on $47K that is partially liquid is not a bad chunk of pocket change... especially when said change can yield from $78.24 to $498.62 in the following year.


LETTING THE BUCKS BUILD

My combined assets are nowhere near 1 BTC. However, it's comforting to know that I have investment options that award high interest rates with relatively minimal interactions. This will prove especially useful the next time real-life requires me to be offline for an extended period. One reason that I favor FreeBitco.in over other accounts is that it is completely hands-free. I'll get the interest payments whether I log in six times a day or less than once a year.

However, crunching the numbers shows me that my giving lower priority to BlockFi was an error. The difference is negligible now due to my low balances. But if my investments build, poorly prioritizing my investments will result in hundreds or thousands of dollars of unrealized income at the end of the year.

I can understand the appeal of HODLing. If I bought 100 tokens worth $0.03, I'd be thrilled if they were worth $10,000 apiece one year later. However, I can't help but feel that many crypto-related sites have their own unique tokens, and I'm guessing that they can't all be the next Bitcoin. Besides, if I want to gamble, I can hop a bus to the El Cortez and play their $1 Craps machine with 5 times odds. (The Plaza will do if I want to settle for $1 Craps with triple odds.)

Besides... one could argue that letting cryptocurrency build in an interest-bearing account is a form of HODLing. A balance that rises due to both compound interest and the increased value of the token itself could be a huge win. Roughly a year ago, 1 BTC was worth about $3,000. Imagine what its worth would be now if it sat at BlockFi until the present day.

Moving forward, compound interest is going to be a cornerstone of my #SatoshisSaturday project. I'm especially interested in interest-bearing stablecoins; how else can I get from 8% to 10% interest on what is essentially traditional currency? Yes, the balance requirements for such high-yield accounts tends to be steep. However, there seem to be no shortage of interest-bearing services.

Coinseed is one of my current favorites; it allows me to "lock" as little as $5 in seven different cryptocurrencies (BCC, LTC, XRP, USDC, ETH, BTC, and DASH) for 360 days for fixed rates ranging from 2.48% to 5.03%. And whereas $0.12 to $0.25 may sound underwhelming for what is essentially a one-year commitment, Coinseed is far friendlier to micro-investors than BlockFi (with a $125 withdrawal minimum) and CoinLoan (with a $100 deposit minimum). In addition, Coinseed charges a flat 1% fee on investments, which means that $10.10 at Coinseed goes much further than buying $10 of cryptocurrency at a brokerage, paying the brokerage fees for buying the cryptocurrency, paying fees to transfer the currency from the brokerage to a personal wallet, and then one more fee to transfer funds from the wallet to the interest-bearing account. Coinseed users can have multiple locks. At my current $10/week investment, that means I can lock funds every 5-6 weeks, even if my activity is mostly hands-off. And users can renew their locks at the end of the period; there's nothing stopping a micro-investor from locking $5 of USDC for 14 days, then automatically relocking $5.0001 14 days later, then $5.0002 14 days after that, etc. This may be a silly strategy for a stablecoin, but it may be a low-risk testing ground for an investor who wants to speculate on one of the other cryptocurrencies eligible for interest.

For users that do not have the budgets and time to manage or micromanage their investments, compound interest is a great way to build income. It is true that the right combination of high interest rates and large amounts of time are necessary to turn a small balance into big bucks. However, there tends to be less risk involved with interest-bearing investments.

I'm interested to see if you agree or disagree with this assessment.


LoonyLiberal
LoonyLiberal

I have 15 years of experience as a software tester. I've been writing off-and-on for 28 years. I adapt quickly to new technologies and new methodologies. And I believe that humor is the most important social skill.


Dollars and Nonsense
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