Bitcoin is the biggest thing in the crypto market and will remain so for many years to come. On crypto market exchanges, it is the most popular coin with the highest value.
Since it was first released over a decade ago, the coin has featured massive gains, and its utility functions have significantly increased.
To make the most of the market, HODLers (long-term holders/investors of bitcoins) have found a way to stay in profit despite the highs and lows in the market through bitcoin lending.
For you to delve into the world of Bitcoin lending, you need to have a comprehensive understanding of the concept, its advantages, as well as its disadvantages.
What is Bitcoin Lending?
This is a niche in decentralized finance that permits Bitcoin investors to lend their coins to various Bitcoin traders. Through this medium, the investors are guaranteed a steady passive income each month or week till the loan is fully repaid.
As Bitcoin becomes more mainstream, the more this idea becomes more appealing. Many frown at cashing out on their BTCs, especially in dire situations; with this concept, they get paid through crypto dividends, which are determined by the terms agreed. Interest rates can be as low as 2% and as high as 18%.
Bitcoin lending allows HOLDers to retain ownership of their assets even when loaned out. This is a great investment opportunity as digital currencies become widely accepted as payment methods across the globe.
This scheme is usually three-way. It involves the investor, the Bitcoin lending platform, and the borrower. To be on the safe side, borrowers are sometimes asked to stake about 25–40% of the borrowed bitcoin or other cryptocurrencies as collateral or security guarantees of loan repayments. This way, the investor can sell them off to recover defaulted loans.
The Upside of Bitcoin Lending
Bitcoin loans have unique characteristics that make them more appealing than conventional bank loans. The major advantages are:
Accessibility
Bitcoin loans are accessible to everyone. It can be gotten from the comfort of your home in a few hours using only your phone or PC. There are zero credit checks, no income slips, and no need to open a bank account. Bitcoin loans are an incredible option for people with low credit ratings.
Safety
This option has fewer risks attached compared with peer-to-peer lending platforms. In cases where collateral is requested, the assets are usually liquid.
Guaranteed Income
As a lender, you can effortlessly make significant passive income through the Bitcoin dividends provided by the automated lending platforms.
Low-Interest rates
In comparison with traditional bank loans, the rates of Bitcoin loans are low. They are a little bit more costly than mortgages and car loans; however, they’re preferable substitutes to credit cards and personal loans.
Bitcoin loans with less than 10% interest rates are common on several platforms.
Loan amount and currency
Borrowers choose to get the loan funds in bitcoins or other cryptocurrencies. Some platforms also allow funds to be disbursed in the form of USD.
Depending on the selected lending platform, you can request as much as 90 percent of your portfolio’s value; most platforms peg loans at 50 percent.
Downsides to Bitcoin Lending
Here is some information about the major disadvantages of Bitcoin lending.
Volatility
The Bitcoin market is highly volatile in the short-term. There are frequent margin calls in which the collateral or the loan funds fall below a certain mark, resulting in a loss for either the borrower or the lender. The chances of lenders selling off some collateral to even out the loan-to-value ratio are quite high.
No insurance on loans
Unlike centralized finance and funds in banks, decentralized finances are not insured. The funds in your wallet are not insured; this means that if the lending platform goes under, you could lose everything invested.
Interest withdrawals can vary
Depending on the platform, it could take a few hours to days to receive interest funds. This can be limiting if the funds are needed urgently.
Bottom Line
If you have a sizable bitcoin holding that you do not plan on selling anytime soon, the best way to maximize its value is by lending a percentage out through a crypto lending platform. Read more about bitcoin selling and buying in bitcoins-era.com platform
Before you make the important decision of committing to Bitcoin lending as a lender or borrower, make sure you understand all the risks and benefits. Don’t go in blind.