Borrowing Against Crypto – Pros And Cons

Here is something for you to ponder: Is it good for Crypto investors to hold their wealth in their wallets for a long time until they see the price rise?

Many would say it is a smart move, but what if we tell you there is much more you can do with your crypto property instead of hoarding it? This is where the concept of crypto lending comes in. This article will discuss crypto lending, how to borrow against crypto, how the crypto loans work, and how to make passive income with Bitcoin lending.

What is crypto lending?

Instead of leaving your crypto in your wallet, you can earn interest on it. Do you know you can invest in cryptocurrencies like Bitcoin, Ethereum, etc., and make passive income from them?  In addition to the additional interest, borrowers can keep these digital assets as collateral for taking out a loan. This process is known as borrowing against crypto.

The idea behind being able to borrow against your crypto is no different from that of conventional lending. The main difference is that instead of lending traditional dollars, you lend various cryptocurrencies to the borrowers.

Investors receive interest payments for lending their cryptocurrency to borrowers on a decentralized marketplace. Crypto dividends are another name for these payouts. Many services let their customers borrow cryptocurrency and take stablecoins as collateral.

Crypto lending is useful since borrowers can use their cryptocurrency holdings as collateral against their loans. Investors can recuperate their losses by selling the crypto assets if the borrower defaults on the loan.

 How to borrow against Bitcoin?

Unsurprisingly, crypto loans are growing in popularity in the cryptocurrency market. The process of securing a crypto loan is identical to that of securing a car loan.

In this scenario, you are taking a loan against Bitcoin for cash, which you will eventually pay back. The lender may sell off your Bitcoin if you can’t repay your loan.

The unstable value of cryptocurrency is a major challenge for the crypto lending industry. Unlike traditional bank loans, Bitcoin loans do not conduct a credit check.

Depending on the lender, you may have to put down twice as many Bitcoins as you would if you were not borrowing against Bitcoin, and interest rates may also be higher.

Borrow Against Ethereum

This is quite similar to borrowing against Bitcoin. The only difference is that you will use Ethereum as collateral instead of Bitcoin in Bitcoin loans. Anything else is the same as it is when taking a Bitcoin loan.

Why borrow against crypto?

Undoubtedly, many people’s attention has been drawn to cryptocurrencies due to the promise of speed and agility in acquiring funds in a short time and the flexibility of utilizing these funds in whatever way one pleases.

In addition, many crypto investors are here for the long term and believe in slowly accumulating as much crypto as possible. But despite their long-term view, these investors also need liquidity for various other needs such as vacations, loan repayment, car purchase, etc.

In such cases, if they sell their crypto, they will lose the competitive advantage of holding BTC in the long run. Crypto lending provides them with that advantage by providing an opportunity to get a loan against crypto.

The user must select the safest and most secure exchange, which has a high rating in the market, and investigate the quality of service it provides its consumers.

Alternatives to borrowing against your crypto

Decentralized cryptocurrency lending platforms are another alternative. Unsecured crypto loans are loans in which the borrower does not have to put up any collateral. Borrowers can repay their loans in cryptocurrency or traditional cash, providing them with immediate access to funds.

To avoid using more liquid assets like real estate or gold as collateral, borrowers can use their Bitcoin holdings to secure loans. The most common type of collateral-free loan in the DeFi (Decentralized Finance) industry is the flash loan. Before applying for a flash loan, all you need to do is make sure you know enough about crypto and DeFi.

Quick flash loans are managed entirely through digital contracts. Before switching to an unsecured loan, be sure you’ve done your homework.

Pros And Cons

Pros

• Individuals need not provide income documentation or open a bank account to qualify for a crypto loan.
• Borrowers can typically receive their funds within a day or two.
• When opposed to P2P lending, the use of cryptocurrency for financing is significantly more secure. Primarily, the crypto assets put up as collateral in crypto lending are easily tradeable.
• Choosing an automated loan platform makes it simple to collect crypto dividends as a passive income stream.
• If you compare lending platform interest rates to those of traditional banks, you will find that they are far lower.

Cons

• A cryptocurrency’s value can fluctuate wildly from day to day. Stablecoins can be borrowed from several exchanges to address this issue.
• You need a digital wallet to keep your cryptocurrency safe and accessible for use in crypto lending transactions. Problematically, digital wallets lack the security of a traditional wallet like a ledger.
• When there are more instances of crypto theft, platform security becomes a major issue.
• However, you can only stake your Bitcoin on some platforms for a limited time. Select a system with no commitment requirements.

Is Borrowing Against Crypto Safe?

It might be safe to hold your crypto and give you an advantage by providing you with funds without having to sell your crypto. There are some risks attached to it. But what’s life without risk? So, just ensure you take a calculated risk when you intend to borrow against crypto.

Conclusion

If you’re interested in crypto lending, there are several great places to start, like Celsius, Haru, Youhodler, and many more. Finding the correct platform may streamline your operations and increase your return on investment.

For this reason, it’s important to exercise caution while picking a loan platform.