There is no one correct way to invest in cryptocurrency. The industry is incredibly versatile, and as an investor or a trader, you have many strategies to consider. One of the most popular approaches is to buy Bitcoin and hold it long-term.
However, as the price of Bitcoin is volatile, seeing profits might take time. To increase the chances of making money, investors engage in Bitcoin lending.
This is a relatively new concept, and not everyone is familiar with it. If you hold Bitcoin tokens in your secure Bitamp hardware wallet and want to make extra cash; here are a few things worth knowing about crypto lending.
Definition of Bitcoin Lending
One of the biggest issues involving crypto investing is the cashflow. Many users feel uneasy about liquidating their assets to cover short-term expenses.
You might find yourself holding a substantial amount of Bitcoin tokens but running out of fiat currency.
With the expansion of the crypto market, more holders find themselves in a similar situation. That is why some crypto exchanges have started offering crypto loans. You can use your tokens as collateral to borrow physical money.
Once you repay your debt with interest, you will receive your Bitcoin tokens back. But there is another side of Bitcoin lending. Some crypto exchanges allow long-term holders to generate passive income from their assets.
For example, you can move 5 BTC from your secure Bitamp hardware wallet to the lending platform and receive monthly interest from it.
Keep in mind that the platforms offering this service evaluate each loan separately to minimise issues with security. Plus, they take precautions to ensure that every issued loan will be repaid.
How to Obtain a Bitcoin Loan?
Whether you’re borrowing or lending Bitcoin, you have two possible routes. Most Bitcoin users choose centralised lending platforms to seek a Bitcoin loan. Depending on the platform you use, the loan term can be anywhere from a week to six months, and often interests are calculated hourly.
Centralised lending platforms such as Binance or BlockFi are well-regulated, making them the safest option for holders and borrowers. There might be more “paperwork” than normal, but you also have the benefit of customer service.
Also, some lending platforms have minimum loan amount requirements, which can be substantial. For that reason, Bitcoin lending is typically more associated with experienced investors.
However, you can also use a decentralised lending platform, where everything is run by code, not companies. It might seem unusual to ask for a loan from a decentralised service, but the algorithms are sophisticated, and the use of smart contracts and protocols can automate loan issuing.
Can You Get a Bitcoin Loan Without Collateral?
One of the notable aspects of decentralised finance is crypto loans without collateral. They are used for short-term benefits and are typically considered unsecured.
Not many lending platforms facilitate this type of crypto lending, but it is not an advisable route for crypto beginners.
Cryptocurrency loans without collateral require extensive knowledge of the process and can be tricky to navigate. It’s essential to make sure that the lending platform is legitimate by doing your research.
What Are the Biggest Benefits of Bitcoin Lending?
The idea of taking out a loan is stressful enough. When you take out a loan from the bank, it affects your overall credit score. Some people’s financial history makes them ineligible for loans.
These factors are far less relevant in the crypto lending industry. The unemployed, under-employed, or those with fluctuating earnings can receive a Bitcoin loan.
Even the repayment scheduling tends to be more flexible. Furthermore, the interest rates for Bitcoin loans are usually in single digits and are often issued in a matter of hours.
There are a few downsides to Bitcoin lending as well. Most lending platforms insist users stake their Bitcoin for a specific period which might not work for everyone.
Also, most crypto assets, including Bitcoin, are quite volatile. Therefore, lending might not deliver the expected profit.
Is Bitcoin Lending Right for You?
Savvy Bitcoin investors can open a savings account on a centralised lending platform and hope for the best. With Bitcoin, there are no guarantees.
If you’re comfortable locking your funds for a pre-determined amount of time, it’s a potentially great opportunity to gain profits.
Also, if you need physical cash, offering the tokens you have as collateral allows you to keep the Bitcoin assets while having a little extra spending money. As long as you repay the loan in time, you will get your tokens back.