An In-Debt Look at Bitcoin Lending: Is It Worth It?
As a crypto investor, you’ve undoubtedly stumbled upon Bitcoin lending platform ads. These platforms come in all different sizes and each with different procedures. Bitcoin lending first gained popularity in 2017 as the crypto market skyrocketed to new heights. The hype of last year’s crypto mania also created a prime environment for Bitcoin lending.
Today, numerous Bitcoin lending platforms offer all types of financing services. Financing options include obtaining a loan to buy Bitcoin, using your Bitcoin to get a loan in fiat, and lending your crypto to others seeking financing. While all of these platforms offer different services, they all have one thing in common: they’re all betting the price of crypto will continue to rise.
The primary goal of platforms that lend crypto is to provide users with more leverage in their trading endeavors. Leverage is an investment strategy in which you multiply the effectiveness of your trades via borrowed money. It’s a common strategy in the stock market.
In theory, the concept sounds fantastic. You get a loan for USD 10,000, buy Bitcoin, the price rises, and you laugh all the way to the bank. In reality, the process is much more difficult than this, and in most instances, investors find themselves with huge piles of debt.
Get a Loan to Buy Bitcoin
Buying Bitcoin can get expensive. Let’s face it, many new investors that would be better off with Bitcoin instead invest in cheaper altcoins because they can own full coins at a fraction of the cost. Experienced crypto investors understand that holding a percentage of Bitcoin can be far more valuable than owning a full altcoin.
Lending firms quickly recognized both the desire of investors to own complete coins and the distancing of traditional lending platforms from the crypto space. This desire led to a flood of Bitcoin lending platforms emerging over the last year. These platforms provide users with more liquidity to purchase their crypto. SoFi is one such platform that has gained popularity over the previous year. SoFi provides you access to fiat funds to buy crypto directly. The platform also offers student loan refinancing and personal loans.
Get a Loan in Bitcoin
Another emerging strategy in the Bitcoin lending sector is crypto-direct loans. These platforms skip fiat currency altogether. Instead, you receive your credit directly in Bitcoin. There are traditionally two types of Bitcoin direct loans. The first type of loan comes from a lending company.Some new loan companies are allowing people to take out a car loan in bitcoin, the only caveat is that the car dealership needs to accept Bitcoin as well.
The second type of Bitcoin direct lending strategy involves connecting you with other investors looking to lend their Bitcoin out in exchange for some interest on the loan. Platforms such as BTCPOP, Bitbond, and Nebeus specialize in these types of transactions.
Get a Fiat Loan Using Your Bitcoin as Collateral
On the flip side of the equation, you have around a thousand Bitcoin holders who control the vast majority of the Bitcoins in existence. Most of these individuals are long-time Bitcoin HODLers, and therefore, have no desire to sell their precious coins. Luckily for these individuals, they can now get fiat currency loans using their Bitcoin as collateral.
Inlock is one such platform to offer these services to investors. In a recent interview, Inlock’s CEO, Csaba Csabai, explained how major Bitcoin holders are in a unique position. Csabai explained how his company discovered that 40 percent of the world’s Bitcoins haven’t moved from their wallets in over a year. He also boasted the tax advantages of this strategy. Crypto trades are subject to tax in most countries, but using your Bitcoin for collateral isn’t.
SALT is another popular Bitcoin collateral loan platform. The company offers same-day verification and requires no credit check. SALT is considered one of the most legitimate Bitcoin lending platforms in the market today. The platform received significant media coverage including articles in Forbes, Bloomberg, and NASDAQ.
Bitcoin Lending Scams
Unfortunately, the Bitcoin lending sector saw a string of recent scandals that have cost investors billions. One of the most widely known of these scandals is BitConnect. This peer-to-peer lending platform got investors for huge sums of money after abruptly closing down its operation in January of this year.
BitConnect quickly rose to a dominant position in the market after a successful ICO hosted in 2016. The platform is widely showcased as a perfect example why not to get involved in Bitcoin lending. BitConnect made headlines for its Ponzi scheme strategy and over-the-top marketing campaign. Charlie Lee, the founder of Litecoin, expressed concerns over the platform late last year via a viral tweet. Bitconnect shut down its operations within a month of the warning.
I’ve been asked what I think about BitConnect. From the surface, seems like a classic ponzi scheme. I wouldn’t invest in it and wouldn’t recommend anyone else to.
I follow this rule of thumb:
“If it looks like a 🦆, walks like a 🦆, and quacks like a 🦆, then it’s a ponzi.” 😂
— Charlie Lee [LTC⚡] (@SatoshiLite) November 30, 2017
Problems with Bitcoin Lending
A January report revealed that as much as 18.15 percent of recently purchased Bitcoin were acquired using credit. These statistics also showed that around 22 percent of these debts are not getting paid off. Considering the volatility of the crypto market, it may be in your best interests to save up your funds and buy your crypto outright. For those of you that don’t have the patience, or have the trading prowess to convert these lent funds, Bitcoin lending can be a smart option.
Bitcoin Lending: That’s Up to You
Deciding if a Bitcoin lending strategy is correct for you can require some serious soul searching. It has been almost a year since Bitcoin reached its all-time high just shy of USD 20,000. For those that got loans at this price, there is no doubt that they regret the decision for the time being. Hopefully, in the future, the crypto market bounces back to these glory days, and everyone can repay their debts. It’s far more likely that these debts will remain unpaid for years to come.
Are you interested in learning more about Bitcoin lending? Check out our comparison of Ethlend vs. SALT.
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ABOUT THE AUTHOR
ABOUT THE AUTHOR
David Hamilton aka DavidtheWriter has published thousands of cryptocurrency related articles. Currently, he resides in the epicenter of the cryptomarket – Puerto Rico. David is a strong advocate for blockchain technologies and financial sovereignty.