I have continued my search for new ways to invest my Bitcoin. I have continued to focus on decidedly Bitcoin things in which to invest. My general requirements are that the investment has to specifically accept Bitcoin directly, have Bitcoin at the center of their product, or something of the sort. As I’ve said before in my previous reviews, I haven’t really set the parameters down in stone, I just wanted to start with those basic guidelines. The next opportunity I looked at was Magnr.
What drew me to Magnr is the idea that you could deposit Bitcoin and earn interest, like a savings account in a bank. However, Magnr is not a bank. They are a trading platform looking for investors and they’ve come up with a fairly unique way to handle it.
The team behind Magnr is again very impressive. I looked several of them up on LinkedIn and their resumes are pretty spectacular. They are a company full of investment bankers, engineers, and IT professionals. The company itself is located in London and they provide contact information, as well as a company number. Although I don’t have contacts to verify the information, it all appears legitimate.
Investing with Magnr is done one of two ways, but to get started it always begins with your initial deposit. Once your funds are in your account you can allocate them to either Trading or Saving.
I’m not really going to cover trading because I’m not interested in that particular feature of Magnr. This is not to say that it’s not a good service or product, it’s just not one I’m planning on using. To me, playing the equity markets with long/short positions is no different than gambling and I’m not really a fan of that style of gambling. At least not yet. That being said, if this is your thing, Magnr has a very nice layout with pretty standard features for doing so. And, who knows, I may revisit Magnr in the future to review this. But for now I’ll stick to Savings.
Savings, on the other hand, is simple. You deposit money. You hold. You earn interest.
Interest seems to be a bad word in the Bitcoin ecosystem. But this isn’t interest generated like banks do it. You see, banks just create interest payments and put them into accounts. It’s part of the problem I have with fiat money, where financial institutions can just make up money and put it into the supply. Magnr can’t do that with Bitcoin, so where does the interest come from? Magnr generates loans to traders so they can take up short positions. Normally this would be done on an exchange through what are known as swaps. You would loan your funds to a trader for a specified duration and interest rate. When the trader no longer required them they would pay them back plus interest. Magnr does this using the pool of investor deposits and then charges a trader fees. These fees are then used to provide interest payments to investor savings accounts.
During the introductory period the interest rate is set at 2.35% AER, which stands for Annual Equivalent Rate. The interest rate accumulates daily and is paid out on the last day of the month. My deposit was on 01/07 which means I only received interest for 23 days in 01. I checked the math and it is accurate. The interest is compound, so interest payments become principal for the next month’s interest calculations. AER means that you get a portion of the interest every month, but to get the full 2.35% rate you need to have your money in the account for a year. Here you can see a handy chart.
As I said above, the interest rate is fixed during the introductory period. Magnr plans to use a variable interest rate in the future. My guess is that they think it will be better, once they get going, to rely on whether or not people are actually using the exchange. Some months will probably be better than others, so they’ll adjust accordingly. This could be either good or bad for investors. If the exchange is doing a lot of business the interest rate may be well above 2% or if it’s not doing a lot of business it could be closer to .1%. But, until then, the set rate is at least dependable.
But is the risk worth the reward? Magnr is arguably safer than the P2P lending services I’ve recommended. In P2P lending your funds are loaned to someone. They possess them and if they choose not to pay them back there’s not much you can do. In swaps your coin are safer than in P2P lending, but they are only earning if you’re loaning them out. Magnr, on the other hand, stores your Bitcoin and provides you with interest pretty much guaranteed. The only real risk I can see is an exit scam or a hack. Or an exit scam blamed on a hack. As usual, I don’t see any reason why they would do such a thing, but the fact remains that they could. It’s been done before by other companies.
Let’s look at the reward numbers really quick: At the time of writing 1 Bitcoin is roughly worth $380. My initial deposit was 1 BTC. I stored the equivalent of $380 in my savings account for nearly a month and earned $0.55 worth of Bitcoin. Next month I could expect a return of roughly $0.76 worth of Bitcoin. Over the year, if the price is steady, I’m looking at about $9 worth of Bitcoin in profit. This does assume that the price remains steady, of course. I will say that this is much higher than even the best savings accounts in banks, the highest of which I could find was 1.05%. This is what average interest rates look like.
At this point I have to say that it’s not a good investment, but not because of an exit scam or hacking risk. Also, it’s not that I think the idea is bad or that the service is bad. I really don’t think there is. I just think that, at 2.35%, I can find better ways to invest my Bitcoin. Maybe it’s the gambler in me that wants a bigger reward and is thus willing to risk more. As of writing I have roughly 33% accrued interest on my investments in BTCJam. On Bitbond I have between 21% and 28% if a loan would actually complete. By comparison 2.35% just looks like I’m letting my money sit there for nothing. If I see that the exchange is booming in the future and users are getting better returns I may revisit, but until then I’ll take my chances. Again, nothing against Magnr, but I think I can do better somewhere else.