Fiat-to-Crypto 'Carry Trade' May Tempt Traders Tired of Negative Interest Rates

With the era of negative interest rates well and truly here, return-hungry investors may increasingly borrow in low-interest fiat currencies and invest in higher-yielding cryptocurrency accounts.

The yen carry trade was popular in 2004-2008 when the Federal Reserve hiked rates from 1 percent to 5.25 percent and interest rates in Japan were stuck near 0.5 percent.

Currently, the carry trade in the FX markets is pretty much dead with almost every advanced nation having interest rates at or below zero.

The Bitfinex exchange pays an annual interest rate of 0.66 percent interest on bitcoin deposits and provides loans at 0.59 percent, according to CoinMarketCap's new Interest tracker.

While Bitfinex is offering 0.66 percent, other platforms are paying significantly higher interest rates on bitcoin deposits, as seen in the chart below.

The annual interest rates paid by crypto lending platforms are significantly higher than the rates across the advanced world, as seen below.

Central banks in Europe and Japan are running a negative interest rate policy, under which financial institutions are required to pay an interest rate for parking excess reserves with the central bank.

The Swiss National Bank, which introduced negative rates in 2015, currently has the lowest rate in the world at -0.75 percent.

The Bank of Japan cut rates to -0.1 percent in January 2016 and has been running the negative interest rate policy ever since.

All-in-all, interest rates across the globe are low and could slide further, boosting the allure of high-yielding crypto deposits.