Money and Markets

Luno now offers 4% interest on bitcoin – but you risk losing all your BTC

Business Insider SA
  • Luno, the now-global cryptocurrency exchange started in SA, on Monday launched a "savings wallet" that promises to pay interest, in bitcoin, on bitcoin.
  • It will be "targeting" 4% per year, Luno says, though it can't promise what the actual interest rate will be.
  • In order to earn that interest, Luno's customers will authorise it to hand their bitcoin over to digital asset lender Genesis, which will lend it out in turn.
  • That comes with risks, Luno warns – including the loss of the BTC parked in the wallet.
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Luno, the global cryptocurrency exchange started in South Africa, will now be offering interest, paid monthly in bitcoin, on bitcoin parked in a "savings wallet", it announced on Monday.

The accounts will have a "target" interest rate of 4% per year, Luno said, though the actual rate will be determined by "market conditions", and could be either higher or lower.

In return, customers will be facing risks that include the potential loss of their BTC, as well as potential delays in getting their tokens back.

Luno was acquired by the Digital Currency Group (DGC) in September 2019. Bitcoin deposited in its interest-bearing wallets will be handed over to another company in that group, Genesis, which lends digital currency to institutions who wish to hedge portfolios, short the market, or speculate in the likes of bitcoin through other means.

"You should be aware that any funds transferred into your Savings Wallet will be lent to our chosen lending partner, in order for them to generate a return," Luno told potential customers for the new service on Monday. "This is how interest is earned. Your savings wallet is not a traditional fiat currency bank account, and cryptocurrency accounts are not covered by deposit protection insurance."

The legal terms for the savings wallet are more direct, requiring customers to "acknowledge that since the Savings Wallet is a lending product, there is an inherent risk of counterparty default, and that this risk is for your own account."

"You understand and agree that should a counterparty become insolvent, or otherwise fail to repay any amounts lent and advanced to it, then this may impact upon your investment," another section of the agreement reads.

The savings wallet carries no administration fees, and there are no fixed terms for investments, such as in traditional fixed deposits. Users can move their bitcoin back to a "normal" wallet any time, Luno says – though it reserves the right to take up to a week before honouring such a transfer request.

South African banks current offer interest of between 3% and 4% on rand-based savings accounts where money is available within no more than seven days.

Bitcoin interest may be subject to taxation, Luno says. 

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