Bitcoin loans have a lot of unique characteristics. This makes them much more appealing when compared to traditional bank loans. Bitcoin right now is the biggest currency on the market, and the way it seems, it will stay that way for years to come. Since it was released, not only has it experienced huge gains, but the utility functions have also rocketed. And for those who didn’t know, the cryptocurrency can not only be kept inside your wallet, but it also be put to work.
How does Bitcoin Lending Work?
Bitcoin lending is a niche of decentralized finance. It allows Bitcoin owners to lend the coins they have to traders. Investors are given a steady yet passive income every week until the loan has been paid back in full. The idea of Bitcoin loans is becoming more appealing, purely because the coin itself is becoming far more mainstream. A lot of people don’t like to cash out on their Bitcoin, even in dire situations. With lending though, people can get paid through dividends, with interest rates ranging from 2% to 18%. The great benefit of Bitcoin lending is that the holder can obtain the ownership of their asset, even when it is loaned out. Bitcoin lending works in a three-way scheme. You have the lending platform, the investor and finally, the borrower. Borrowers are often asked to stake between 25% and 40% of their borrowed Bitcoin as collateral.
Pros of Bitcoin Lending
The major pros of Bitcoin are as follows:
Accessibility
Cryptocurrency loans are accessible to everyone. You can take them out in the comfort of your own home, using your computer or phone. There aren’t any credit checks to be done, you don’t need income slips and you also don’t even need to have a bank account. This is an incredible opportunity for those who do not have a good credit rating.
Safety
Borrowing Bitcoin presents a lower risk when compared to P2P lending platforms. If the collateral is required, the assets are, most of the time, liquid.
Guarantees
If you are a lender, you can make a significant amount of income through dividends if you go through the right lending platform.
Low Interest
In comparison to a traditional bank loan, the Bitcoin rate is very low. Bitcoin loans with less than 10% interest are very common.
Cons of Bitcoin Lending
And just like anything else, it also has a downside.
Volatility
The market for Bitcoin is volatile, especially over the short term. The chances of a lender having to sell the collateral to even out the LTV ratio are high.
No Insurance
Unlike centralized funds, Bitcoin and other decentralized finances, cannot be insured. The funds that you have in your wallet are not insured and this means if the platform you work through goes down, you could lose out on everything that you have invested thus far. Another downside is that the interest can take up to a few days to clear in your wallet. This can be somewhat frustrating if you need the funds immediately.
So, it’s more than possible to borrow and lend cryptocurrency. In fact, there are some benefits to doing so. That being said, it’s important to understand both sides of the coin, before you go ahead with your investment.