Crypto Banking in the Spotlight with Bitwala/Celsius Deal

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  • Crypto banking app Bitwala offers up to 4% interest on your Bitcoin holdings
  • Deal with Celsius offers better interest rates than a regular bank
  • Variable interest rates and third-party Bitcoin storage could reduce appeal

Crypto banking moved a step closer to reality last week when Bitwala teamed up with Celsius to offer interest on Bitcoin holdings, but the deal comes with some important caveats. Is the first interest-earning crypto bank account really a good deal, or does it join the TokenPay crypto bank in the graveyard of broken dreams?

The Good – Interest on Your Bitcoin Holdings

First, the good news. Bitwala will indeed pay interest on any Bitcoin holdings you hold with them and the process seems pretty simple – you deposit your Bitcoin to Bitwala and get the interest paid weekly into a separate BTC Interest account, which you can then add to your existing holdings, move out of the wallet, or spend using the Bitwala debit card. Despite being based on an annual rate of interest the interest itself is calculated and paid in on a weekly basis, unlike most regular bank accounts where a monthly interest payment is more common.

Also, Bitwala is not some fly by night crypto scam – they were founded in 2013 as a way of being able to pay for everyday items with Bitcoin and have been a solid player in the Bitcoin payments space ever since. Along with other crypto card providers they faced severe challenges when Visa kicked Wavecrest off their platform, but they have rebuilt impressively where others have failed.

The Bitwala wallet, where you will need to keep your Bitcoin, is a software wallet that sits on a mobile device, although you retain the private keys. Still, this is something worth considering as you are still relying on a third party to look after your funds.

The Bad – Interest Varies Weekly

Now the bad. Bitwala has teamed up with Celsius for this gig, meaning they are relying completely on the performance of a third party rather than offering a service themselves. This already weakens the strength of the offering, especially as Celsius is a relative newcomer in the space and has had its own problems in the past. Bitwala is putting a lot of faith in Celsius to get this right, as their own reputation is on the line.

Secondly, with regards to the mechanics of the deal, the much vaunted 4% annual interest is “subject to weekly change”. Weekly change. Think about that for a moment – you’re not sure what interest you’re going to get from one week to the next, yet you’re supposed to give up the security of storing your Bitcoin in a cold wallet in return.

The interest rate is based on “market demand”, or how much borrowing is being made on the Celsius platform, with more borrowing meaning a higher interest rate, up to 4%. As yet we have no idea how much this will fluctuate, but users could find themselves extremely disappointed if the platform does not take off.

The Ugly – Don’t Forget the Tax

Now the ugly – tax. If every week you receive some interest, you will have to record those transactions as income, declare them on your tax return, and be taxed accordingly. Not only that, in some countries you will have to also take some action on the earned Bitcoin the moment it arrives, such as selling it or moving it to a different wallet, in order to avoid the risk of paying more tax when you finally do take action. Is that really worth it for the equivalent of 0.077% interest per week? That purely depends on how much you’re willing to hold there.

Great for Whales, But Will They Care?

Overall it doesn’t seem that the Bitwala crypto bank offering is particularly tempting, especially as the interest rate will vary on a weekly basis and you are expected to use their proprietary software wallet in order to earn the interest. The service may be useful to those who have large amounts of Bitcoin, but then again, would a Bitcoin whale really be comfortable moving their holdings to Bitwala’s custody? Probably not.