More

    What You Need to Know about Crypto Lending and Investing

    Cryptocurrency has been getting more popular in the past few years, not only in the United States but all around the world. 

    In the U.S. alone, an estimated 16% of Americans have personally invested in or used cryptocurrencies. That’s roughly 40 million people making use of digital currencies. 

    That said, digital currencies are still highly volatile in the short term. One example is Bitcoin, which doubled its value in 2021 but lost its gains in the first month of this year. 

    People who are not concerned about the volatility of digital currencies short-term and are interested in using them long-term can use their digital assets as collateral for loans. 

    Here’s what you need to know about crypto lending as well as some of the things you need to consider: 

    How Crypto Lending Works

    A loan that is backed by crypto makes use of digital currency as collateral. This is comparable to securities-based loans. It works like a mortgage or a car loan; you pledge your crypto assets to get the loan you need and pay it off over a certain period. You can get this specific type of loan through a crypto exchange or lending platform. 

    While you are still the owner of the crypto that you’ve used as collateral, you do lose some of your rights. For instance, you cannot trade or use your crypto to make transactions. Another thing to note is that if the value of the digital assets you used as collateral drops, you could end up owing a lot more than what you borrowed if you default on your loan.

    Who Are Involved?

    Borrowers and lenders in cryptocurrency lending connect through a third-party platform that serves as the intermediary. 

    So, basically, the three parties are:

    • the borrowers
    • the lenders
    • the lending platforms

    The borrowers are the people who are looking to get funds for purposes like funding a business, for emergencies, or for other personal uses. They use their crypto assets as collateral to get the funding they need. 

    The lenders are investors are typically those who hold crypto waiting for their value to skyrocket. Sometimes these are simply aficionados who are working on growing their assets’ output.

    The crypto lending platform handles and processes the transactions involved in lending and borrowing. There are decentralized platforms, centralized platforms, and autonomous platforms. 

    Should You Lend Crypto?

    If you invest in cryptocurrency, you should consider lending it to increase your holdings. Make sure that you choose a lending platform that you are comfortable with and confident in. Also, learn as much as you can about it, including how much you can possibly earn in interest.

    Benefits of Cryptocurrency Lending

    Compared to traditional loans, crypto loans are quite unique because of their features:

    Low-Interest Rates

    They are not as cheap as mortgages or car loans but they are not as expensive as credit cards and personal loans. 

    Loan Amount Based on Asset Value

    Most of the time, you can borrow up to 50% of the borrower’s portfolio value, but there are some that allow you to go as high as 90%. 

    Choice of Currency

    Depending on the platform you are using, you can get the loan funds you need in US dollars or other currencies. 

    No Credit Check

    Typically, crypto lending platforms and exchanges don’t run a credit check, so it’s attractive for those with poor or no credit history.

    Fast Funding

    Once approved, borrowers can access their funds in just a few hours. 

    Conclusion

    Cryptocurrencies are a great investment for anyone who wants to make money. Not only can you become a borrower using your cryptocurrency, but you can also lend your cryptocurrencies to others. If you lend your cryptocurrencies, you will earn interest based on the value of your digital currency.

    If you are new to crypto and want to know more, check out other cryptocurrency articles from No Names Digital. We publish the latest news on cryptocurrency, digital marketing, and investing, among others. Check out our latest posts today!

    Latest articles

    Related articles