Put Your (Crypto)Currency to Work so You Don't Have To
What is crypto lending and how does it work?
Crypto lending is like a crypto savings account. You lend out your cryptocurrency to an online platform and you receive a percentage in the form of interest.
Why does it matter?
If you are a long term holder in a certain cryptocurrency, like Bitcoin, you can make passive income. Rather than keeping your Bitcoin in a wallet, you can put your money to work. The typical return you can expect for lending Bitcoin is 4%-8% annually. Remember that you also make money if the asset itself appreciates. That means not only will you make a premium on the interest, but the Bitcoin itself may also become more valuable. Conversely, if the price of Bitcoin declines, your asset will be worth less, and the interest accrued will reflect that.
Some platforms will offer extremely attractive offers on lesser-known cryptocurrencies, either to raise money for their own platform or as a marketing opportunity to promote upcoming projects. Crypto.com, for example, offers an 18% annual rate on its coin CRO.
Before you dump your life savings into CRO, consider the risks. If Crypto.com goes out of business or decides to issue a new coin the value of CRO will plummet. 18% return on 0 is still 0.
Why are these yields so attractive compared to a typical loan?
The reason it is difficult to receive an 8% return on a loan of US Dollars is because there are many dollar lenders available. There are many fewer Bitcoin lenders which makes it a more valuable proposition.
Additionally, companies offer +18% yields on their own coins because they believe they can make a higher percentage return on their business. If they can produce $1.20 for each of your $1 invested then they are in a lucrative position.
What's the Risk?
The risk of loaning money is that you won’t get paid back. In this case, if the person borrowing money from the platform defaults then the platform bears the responsibility. In this sense, your investment is secure.
However, if the platform itself gets hacked, goes out of business, or otherwise acts unscrupulously then your money is gone and you’ll never it back.
To avoid this issue, consider using several lending platforms like celsius.network or nexo.io to protect yourself from any one of them failing.
Is Lending for Me?
Many people are holding currency in their bank accounts and are not putting their money to work. That is a big loss. As Albert Einstein said:
“Compound interest is the 8th wonder of the world. He who understands it, earns it; he who doesn’t, pays it.”
Putting your money to work is how you can create massive wealth. You are missing out on a lot of capital gains if you have money in your bank that you will not need for the foreseeable future.
Make sure your monthly income covers your monthly expenses. Then make a rainy day fund that can last you 6 months to a year in times of, ehem, crisis. The rest of the money should be invested. You can buy stock, bonds, Real Estate, or Bitcoin. Part of that strategy could be lending out cryptocurrency.
If you want to be risky you can take a flyer of the +18% returns or if you want to be conservative you can keep your digital coins in an offline safe. It's up to you.
Check out Stakingrewards.com to compare the different returns you get from different cryptocurrencies across different platforms.
I hope this article will inspire you to take the plunge and lend out some Bitcoin as I recently did. There is no better feeling than waking up in the morning and seeing that you're just a little bit richer.
Disclosure: This is not financial advice. I have no vested interest in any of the companies listed above. I am long Bitcoin.
