As part of the new crytpo carry trading strategies, it must be considered that low interest rates cause an increase in the aggregate demand for goods and services at a given time. Consequently, cryptocurrency traders can exchange their “cheap” fiat currency for a stablecoin, such as Tether (USDT), and deposit that cryptocurrency into a high yield savings account.
Many cryptocurrencies, for example, are able to offer interest of up to 12.0% on stablecoin- denominated deposits. How is it possible? They finance this high interest through loans secured by cryptocurrencies offered to traders. As the interest rates offered by traditional banks continue to fall, this carry trade strategy represents a viable option for cryptocurrency traders, who take advantage of the digital economy to profit. The interest rates that crypto banks offer on crypto deposits are much higher than those offered by traditional banks.
This carry trade opportunity will likely persist, at least as long as central banks maintain a negative interest rate policy (NIRP), a policy that requires financial institutions to pay interest to hold extra reserves within the central bank. For example, the Swiss National Bank first introduced negative rates in 2015 and currently has the lowest rates in the world, equal to -0.75%.
In addition, central banks that have adopted NIRP monetary policies are likely not to reverse their monetary stance in the short to medium term, also considering that financial analysts predict a grim prospect for the world economy in the coming years. Interest rates are already at historic lows and may drop even further. Hence, the benefits of high yield cryptocurrency-denominated deposits and cryptocurrency trading could increase in the coming years.